UK’s services sector in fastest growth rate

BUSINESSES in Britain’s dominant services sector grew at its fastest pace since January last month and the broader economy maintained momentum a survey showed yesterday.

The Markit/CIPS services purchasing managers’ index (PMI) rose to 55.2 last month from 54.5 in October, beating all the forecasts in a Reuters poll.

However, businesses reported the second-weakest level of optimism about the future in four years, due to the unexpected result of the US presidential election, the value of sterling and uncertainty about how Britain will leave the EU. Despite a dip in the equivalent survey of manufacturers published last week, overall the November PMIs suggested the economy would maintain the third quarter’s solid 0.5percent growth rate through to the end of the year, Markit said.

“The pace of UK economic growth remains… robust in the fourth quarter, despite ongoing uncertainty caused by Brexit,” said Chris Williamson, the chief business economist at IHS Markit.

Most economists and the Bank of England (BoE) said the economy would slow after June’s Brexit vote. But strong consumer demand and a boost to exporters from the heavy post-referendum fall in sterling have kept growth going.

A survey by manufacturing lobby EEF released yesterday showed a boost in new orders and a better-than-expected recovery in output.

Last month the BoE revised up its forecasts to pencil in 0.4percent growth for the last three months of this year. But it also said annual growth would slow to 1.4percent next year from 2.2percent this year as higher inflation squeezed household incomes.

“Elevated price pressures and drop in expectations suggest that a slowdown remains on the cards for next year,” HSBC economist Elizabeth Martins said. “Inflation is likely to outpace wage growth over the coming year or so, bearing down on domestic demand and causing growth to slow.”

Businesses were already starting to feel the pinch of costlier imports due to the fall in sterling, and Markit said business costs had risen by the most in five-and-a-half years during the past two months.

“These higher costs will inevitably feed through to consumers in the form of higher prices,” Williamson said.

The BoE forecast inflation would surge to 2.7percent next year from 0.9percent in the most recent data, and many private-sector economists think it could rise even faster.

However, very few expect the BoE to reverse August’s rate cut in response. – Reuters