ECONOMIC OUTLOOK
THE UK services sector, the biggest single contributor to economic growth, is likely to have slowed in November as inflation picked up, according to data released yesterday.
IHT Markit’s services purchasing managers’ index dropped to 53.8 in October, well below expectations of a 55 reading. Anything above 50 indicates expansion.
The slowdown in October suggests a trend that will spread into November’s reading, but it fails to tell the full story of the economic hit because the services sector does not include retail, which has also seen volumes drop as the squeeze on household incomes continues.
Respondents to the survey reported the highest rising prices charged to customers since early in 2008.
Meanwhile, the Black Friday sales failed to boost retailers as expected, with retail sales rising 0.6% in November compared with a year earlier, according to KPMG and the British Retail Consortium.
All the growth came from food purchases, underlining how cautious consumers are about discretionary spending amid rising inflation and flat wage growth.
More housebuilding meant construction activity increased much faster than expected in November.
The IHS Markit construction purchasing managers’ index (PMI) rose to 53.1 from 50.8 in October. Official UK growth figures for the third quarter of this year showed the construction sector contracted for two consecutive quarters – the technical definition of a recession as big commercial and infrastructure projects came to an end without new work to replace them.
However, recent PMI surveys, which seek to give “grass roots” indications of the sector’s health, suggest construction has regained some momentum and returned to growth during the final three months of the year.
Housebuilding has been a rare bright spot for the industry as the government’s Help-to-Buy scheme has supported demand.
UK manufacturing activity also ticked up in November to its highest level since August 2013. The Markit/CIPS manufacturing PMI rose to 58.2 from 56.6 in October.
House prices edged up 0.1% in November as the property market remained subdued, according to Nationwide Building society. The slight increase followed monthly rises of 0.2% in October and 0.4% in September, according to the lender.
While annual price growth stayed steady at 2.5%, the society said the market was being held back by increasing pressure on household incomes and falling consumer confidence.
Robert Gardner, Nationwide’s chief economist, added that the government’s decision to abolish stamp duty up to £300,000 for firsttime buyers was unlikely to boost demand by much.
GfK’s consumer sentiment index fell to minus 12 in November from minus 10 in October. All five measures used to calculate the index deteriorated, with that for general economic situation falling the most to minus 32 points.