UK economy set for Q1 hit but vaccines are raising recovery hopes - PMI

LONDON (Reuters) - Britain's third national coronavirus lockdown has put the economy on course for a sharp contraction in early 2021, but services companies - buoyed by progress on vaccinations - are confident about recovery, a survey showed on Wednesday.

The final version of the IHS Markit/CIPS UK Composite Purchasing Managers' Index (PMI) - spanning services businesses and manufacturers - fell to 41.2 in January from 50.4 in December, far below the growth threshold of 50.0.

This was the index's lowest reading since May. But it was up slightly from a preliminary reading of 40.6 for January and was nothing like as weak as during Britain's first lockdown last spring when it slumped to 13.8.

The fast rollout of COVID-19 vaccinations in Britain helped to push optimism among services firms to its highest since May 2014, in contrast to falling confidence in the euro zone, where vaccinations have been slow.

Watch: Coronavirus antibodies last for at least six months after infection, study finds

The Bank of England is expected to hold off from pumping more stimulus into the economy on Thursday as it waits for the lockdowns across Britain to be eased in the spring.

"While the UK economy is on course to contract sharply during the first quarter of 2021, businesses remain confident that pent-up demand and an easing of pandemic restrictions will provide a springboard to recovery later this year," Tim Moore, economics director at IHS Markit, said.

The PMI for the services industry alone, which accounts for the bulk of Britain's private-sector economy, fell to 39.5 in January from 49.4 in December, its lowest since May and marking a third month of contraction.

Companies mostly cited the hit from COVID-19 international travel restrictions on export sales but some said Brexit pushed down orders from clients in the European Union.

Watch: What UK government COVID-19 support is available?

(Reporting by William Schomberg; Editing by Catherine Evans)