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UK Services Activity Growth Exceeds Expectations

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British services activity growth exceeded expectations at the end of 2017 despite the Brexit-related uncertainty weighing on business investment.

The IHS Markit/Chartered Institute of Procurement & Supply services Purchasing Managers' Index rose to 54.2 in December from 53.8 in November, survey data from IHS Markit showed Thursday.

Economists had expected the index to rise moderately to 54.0. Any reading above 50 indicates expansion in the sector.

However, service providers noted that Brexit-related uncertainty continued to hold back clients' willingness to spend at the end of 2017.

The likelihood is that the resilience of the economy will be increasingly tested by the prevailing uncertainty and anxiety about the future, suggesting growth will slow in the absence of greater clarity regarding a favorable Brexit outcome, Chris Williamson, chief business economist at IHS Markit, said.

Paul Hollingsworth, an economist at Capital Economics, said data suggest that the economy maintained a decent amount of momentum in the fourth quarter, which is expected to continue in 2018.

Among components, new orders increased at the weakest pace since August 2016 amid subdued business investment and cost consciousness among clients, Markit said.

Softer increases in new orders helped to alleviate pressures on operating capacity across the service economy. The latest decrease in backlogs of work was the joint-fastest since February 2017.

Service providers reported a moderate growth in workforce numbers in December, though the rate of job creation slipped to a 9-month low in December. Some firms suggested tight labor market conditions led to difficulties replacing departing staff.

On the price front, service providers reported fastest input price inflation since last September. Meanwhile, average prices charged increased at a robust pace across the service sector, although the rate of inflation eased from November's peak.

Business optimism picked up to a seven-month high in December, with around 43 percent of the survey panel expecting a rise in business activity over the course of 2018.

Elsewhere on Thursday, data on the property market showed an acceleration in house prices in December as well as an increase in mortgage approvals.

According to the Nationwide Building Society, house price inflation rose to 2.6 percent in December from 2.5 percent in November, while the rate was expected to ease to 2 percent.

On a monthly basis, house price growth increased to 0.6 percent from 0.1 percent a month ago. Prices were forecast to gain only 0.1 percent.

House prices in London declined in annual terms for the first time in eight years, albeit at a moderate 0.5 percent. London ended the year as the weakest performing region for the first time since 2004.

Robert Gardner, Nationwide's chief economist, said the housing market performance this year will be determined by developments in the wider economy.

Nationwide forecast the UK economy to grow 1 percent to 1.5 percent in 2018 and 2019. The group expects house prices to rise by around 1 percent this year.

The Bank of England reported on Thursday that 65,139 mortgages were approved for house purchases in November compared to 64,887 in October. Approvals were forecast to fall to 64,000.

by RTTNews Staff Writer

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