Services sector grows but mood darkens over fears of turmoil

Markit chief economist Chris WilliamsonMarkit chief economist Chris Williamson
Markit chief economist Chris Williamson

Britain’s services sector shrugged off global jitters to slightly expand last month, a new survey out yesterday said. But it warned that the outlook for the industry had hit its lowest point for three years amid fears of further turmoil in the markets.

The CIPS/Markit purchasing managers’ index (PMI) said the 12-month outlook for the services sector had plummeted, as firms were concerned about a “hard landing” in China and the possibility of a British ‘Brexit’ from the European Union.

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The survey said activity in the services sector – which ranges from IT and hotels to retail and transport – remained decent in January, with a reading of 55.6 compared to 55.5 in December. Any reading above 50 denotes growth.

The expansion was boosted by further rises in new business, which grew for the 37th month running, while the rate of expansion rose to a six-month high.

But the volume of outstanding business contracted during the month for only the second time in nearly three years, the report stated.

The CIPS/Markit report added that the rate of job creation was strong last month, picking up from December’s five-month low. The update on the services sector, which accounts for three-quarters of GDP, followed figures this week on the construction sector.

Meanwhile, UK factories have enjoyed a better start to the year than expected as domestic demand boosted manufacturing output.

Chris Williamson, chief economist at Markit, said yesterday: “Worries about a Chinese ‘hard landing’, financial market jitters, higher interest rates in the US, more austerity at home and the possibility of ‘Brexit’ and EU tensions have collectively pushed the business mood in the dominant service sector to its darkest for three years.”

He added: “Despite the uptick in growth, the increased uncertainty about the outlook and persistent lack of inflationary pressures means the majority of policymakers will no doubt be more worried about avoiding another downturn than whether the economy needs higher interest rates.”

The next data to be focused on by the market will be the Bank of England’s monthly inflation report out today.