UK service sector growth ‘continues to strengthen’

Growth in the UK’s key service sector continued to strengthen last month, according to a closely watched survey.

The IHS Markit/CIPS purchasing managers’ index for the sector rose to 55.2, up from 54.5 the previous month and the highest figure since January.

A figure above 50 indicates that the sector is expanding.

IHS Markit said the service sector remained on a “firm growth path”, with the UK economy “resiliently robust”, despite uncertainty over Brexit.

The service sector accounts for about 80% of the UK economy. Combined with previous surveys of the manufacturing and construction sector, IHS Markit forecasts that the economy as a whole will grow by 0.5% in the last three months of 2016, the same rate as in the third quarter.

The survey found employment growth in the service sector hit the fastest pace since April.

However, business expectations for the next 12 months weakened, which IHS Markit said was due to “ongoing political uncertainty and inflationary pressures”.

Price pressures

The fall in the value of the pound since the UK’s vote to leave the EU has pushed up the price of imported goods.

IHS Markit said price inflation for goods bought by service sector firms eased last month but remained “sharp”.

It said companies blamed inflationary pressures on “the weak sterling exchange rate driving up import costs such as food, higher fuel prices, international travel (again linked to exchange rates) and rising labour costs”.

Chris Williamson, chief business economist at IHS Markit, said: “Rising prices – often linked to the weaker pound – are a big concern, however, and suggest that inflation is set to lift higher.

“The past two months have seen the steepest rise in businesses’ costs for over five-and-a-half years. These higher costs will inevitably feed through to consumers in the form of higher prices.”

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Economy, Featured