Services sector growth last month may have boosted final quarter GDP

● IHS/CIPS purchasing managers index hits 54.2, up from 53.8 previous month

The UK economy may have accelerated in the final three months of 2017 after output in the pivotal services sector was better than expected in December.

The IHS Markit/cips services purchasing managers’ index (PMI) out yesterday showed a reading of 54.2 last month, up from 53.8 in November. A reading above 50 denotes expansion, and City economists had forecast a figure of 54.

Chris Williamson, IHS Markit’s chief business economist, said the performance of services – including hotels, transport, IT and restaurants – could have helped the UK economy achieve 0.5 per cent growth in the final quarter of the year. There was growth of 0.4 per cent in Q3.

However, services’ new business volumes slowed in the face of “subdued business investment and cost consciousness among clients”, IHS/CIPS said.

The update follows a mixed performance from other areas of the economy last month, with the UK manufacturing industry churning out “solid growth” and construction output growth slowing from November.

Williamson said: “December saw a welcome upturn in service sector activity, highlighting the continued resilience of the economy as 2017 came to an end.

“Alongside the solid expansion seen in manufacturing and modest construction sector upturn, the survey data are consistent with the economy having grown 0.4 per cent to 0.5 per cent in the fourth quarter of 2017.

“However, as has been increasingly the case in recent months, the good news comes with a health warning about the sustainability of the upturn.

“Digging into the details behind the resilient strength signalled by the headline numbers, the survey data reveal an economy that is beset with uncertainty about the outlook, which is in turn dampening business spending and investment.”

However, companies were less gloomy about Brexit uncertainty for the year ahead, with services optimism reaching a seven-month high in December as more businesses eyed a potential rise in activity this year.

The Office for National Statistics (ONS) confirmed last month that gross domestic product (GDP) grew 0.4 per cent in its final reading for July to September this year, rising from 0.3 per cent in Q1 and Q2.

However, the UK economy is still struggling to bounce back to levels seen in the final quarter of 2016 – when GDP rose by 0.6 per cent.