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Boost to services sector sparks UK growth hopes


Britain’s economy appeared to have picked up speed at the end of last year as figures showed a boost for the dominant services sector.

However there were signs of possible weakness in separate data on Thursday showing house price growth slowing and consumers putting the brakes on borrowing.

The IHS Markit/CIPS services Purchasing Managers’ Index (PMI), taken together with data from other sectors, suggested GDP growth of up to 0.5% in the fourth quarter, compared with 0.4% in the July-September period.
The services figures gave a reading of 54.2 in December, up from 53.8 in November – on an index where the 50-mark separates growth from contraction.
They relate to a sprawling sector which ranges from bars and restaurants to law and accountancy firms and represents four-fifths of UK economic output.
Taken together with survey data from the manufacturing and construction sectors earlier this week, it pointed to growth of 0.4-0.5% in the last quarter of 2017.
The services report also showed business optimism picking up – following a year in which UK growth has been lagging behind other major economies.
But Chris Williamson, IHS Markit’s chief economist, said: “The good news comes with a health warning about the sustainability of the upturn.”
That was after firms also reported a slowdown in new orders and hiring, and rising costs.

Image: House price growth slowed sharply in 2017
Mr Williamson said: “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 investment and spending.”

Kallum Pickering, senior UK economist at Berenberg, said the UK economy now looked likely to have grown by 1.8% in 2017 – better than had been expected but lower than it might have been without Brexit and lagging behind the US and the eurozone.
Britain’s growth slowdown over last year has been largely attributed to the after-effects of the 2016 Brexit vote, which saw a plunge in the pound, making imported goods more expensive and driving up prices – resulting in a squeeze on consumers.
Pressure on household incomes was also partly blamed for a slowdown in annual house price growth in 2017 to 2.6% reported by lender Nationwide on Thursday – down from 4.5% in 2016.
It was the slowest pace since 2012 – while in London, prices saw the first fall in a full year since 2009.
Nationwide said it expected UK house price growth to slow further to 1% in 2018.
Meanwhile, Bank of England data showed consumer lending growth slowing to 9.1% in November, the lowest rate since December 2015.

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That comes after a peak of nearly 11% in the autumn of 2016, which had prompted concerns about households becoming overstretched.
Howard Archer, chief economic adviser for EY ITEM Club, said last November’s interest rate hike of 0.25% – the first in a decade – may have had a “significant psychological impact” on borrowers.

Source: Sky

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