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UK Services Growth Weakens On Brexit Uncertainty

UK-ServicesPMI-020518-lt.jpg

British service sector activity expanded at a slower pace in January, largely reflecting weak gains in new work as Brexit remains the main course of concern, survey data from IHS Markit showed Monday.

The IHS Markit/Chartered Institute of Procurement & Supply Purchasing Managers' Index, dropped more-than-expected to 53.0 in January from 54.2 in December.

The expected reading was 54.0. Nonetheless, any reading above 50 indicates expansion in the sector.

The score signaled the slowest upturn in services output for 16 months in January. Growth was reportedly curtailed by the loss of existing clients and lingering concerns surrounding the UK's exit from the EU.

"The January slowdown pushes the all-sector PMI into dovish territory as far as Bank of England monetary policy is concerned, historically consistent with a loosening bias," Chris Williamson, chief business economist at IHS Markit, said.

"With the survey also indicating weaker upward price pressures, the data therefore cast doubts on any imminent rise in interest rates," Williamson added.

Today's data is likely to take a bit of wind out of the more hawkish members of the Monetary Policy Committee at Thursday's meeting, Paul Hollingsworth, an economist at Capital Economics, said.

But it does not alter the assessment that the consensus is too downbeat on growth this year, the economist said.

New orders increased at a slightly quicker pace in January, but the rate of growth was weaker than seen during most of 2017.

However, job creation picked up as companies retained positive expectations surrounding the outlook. The upturn in headcounts reflected the opening of new branches, projects in the pipeline and positive output expectations.

Confidence among services firms was the strongest since last March. Sentiment was boosted by planned increases in capex, advertising efforts and greater market shares.

On the price front, input price inflation remained sharp in January, but the rise in costs was the weakest since September 2016.

Selling prices were raised as companies attempted to protect profit margins given strong upward pressure on cost burdens. Despite being above its long-run path, the rate of charge inflation softened to a four-month low.

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