Slower services growth after Brexit

Output in Britain’s powerhouse services sector eased back last month, eking out its slowest rise since October as cost pressures continued to bite.

The closely-watched Markit/CIPS purchasing managers’ index (PMI) reached 54.5 in January, down from 56.2 in December and below economists’ forecasts of 55.8. A reading above 50 indicates growth. The services industry, which accounts for nearly 80% of UK economic growth, saw activity decelerate for the first time in four months, while growth in new business and employment tailed off.

Cost pressures heaped on firms from the Brexit-hit pound loomed large, with input price inflation accelerating to its highest level since March 2011.

Business expectations hit their highest point since May 2016, as robust pipelines of work, new product launches and low interest rates helped boost optimism for the year ahead.

Chris Williamson, chief business economist at IHS Markit, said despite January’s slowdown, the industry still made a buoyant start to the year.

“The PMI surveys are collectively signalling that GDP will increase by a robust 0.5% in the first quarter, if current growth is sustained in coming months,” he said.

“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 only be temporary.

“The main area of concern is the extent to which companies’ costs are rising across the economy, with the rate of inflation accelerating to a pace not seen since before the financial crisis.”

New business rose for the sixth consecutive month, while outstanding business fell for the first time in three months.

Howard Archer, chief UK and European economist at IHS Global Insight, said: “Services have been the key UK growth driver along with consumer spending, and January survey evidence for both has been softer.”

He said the figures fuelled suspicion that the UK economy will find life more difficult during 2017.

Picture: PA. The report warned that rising inflation will cause companies’ costs to rise.