It’s all rosy for service sector

CONFIDENCE among firms in the dominant services sector hit an eight-month high in January, boosting the UK’s growth prospects despite rising cost pressures from a weaker pound.

Apart from last May, companies generating three-quarters of Britain’s output from across hotels, pubs, restaurants, IT and transport have not been so upbeat for 18 months.

Their optimism for the year ahead is founded on a combination of product launches and moves into new markets as well as low interest rates and clarity around Brexit, according to the survey by Markit/CIPS purchasing managers.

There was a slight easing of activity last month from December’s 15-month high in its monthly snapshot, but its 54.5 index reading marked the sixth consecutive month it has been above the 50-point mark denoting expansion.

Added to earlier reports from manufacturing and construction, it signals “robust” GDP growth of 0.5 per cent over the first quarter, following 0.6 per cent expansion over the previous three months. IHS Markit chief business economist Chris Williamson said: “The January surveys point to a buoyant start to 2017 for the UK economy. Encouragingly, optimism about the coming year has risen to its highest in one-and-a-half years, improving across the board in all sectors to suggest that January’s slowdown may be only temporary.”

He said the main area of concern was the extent to which companies’ costs are rising, with the rate of inflation accelerating to a pace not seen since before the global financial crisis. This is deterring some firms from taking on extra staff and it will feed through to increased selling prices.

IHS Global Insight chief UK economist Howard Archer said: “Looking ahead, we suspect that consumer services activity will be increasingly pressurized by consumers’ purchasing power weakening over the coming months as inflation rises appreciably and earnings growth is muted.

“This is likely to cause some consumers to cut back on their discretionary spending, including on services.”