Britain’s economy has probably slowed from its strong growth of late last year, while a cooling jobs market and hefty price increases will become increasingly apparent as Brexit gets under way, a survey published yesterday showed.
The Markit/CIPS Services Purchasing Managers’ Index (PMI), a closely watched gauge of Britain’s services industry, rose to a three-month high of 55 last month from 53.3 in February.
That topped all forecasts in a Reuters poll of economists, whose median forecast was for a reading of 53.5, pushing sterling almost US$0.5 higher against the US dollar.
However, there were some warning signals as Britain begins the two-year process of leaving the EU.
Services companies raised their selling prices at the fastest pace since 2008, a sign that inflation might rise more than the 3 percent expected by many forecasters this year. Businesses hired people at the slowest pace in seven months.
Taken together, the PMIs for manufacturing, construction and services published this week suggest economic growth will slow to about 0.4 percent in the first quarter from 0.7 percent in the fourth quarter of last year, data firm IHS Markit said.
Growth of 0.4 percent would be in line with a Reuters poll of economists, but slower than the 0.6 percent predicted by the Bank of England.
“The PMI does not cover the retail sector and hence may be overestimating growth somewhat given the concentrated hit in that area,” JPMorgan economist Allan Monks said.
However, conditions outside Britain had clearly improved and there was uncertainty about how quickly consumers would respond to higher prices, Monks said in a note to clients.
The Bank of England is widely expected to keep interest rates at their record low throughout this year and possibly until 2019.
However, one rate-setter voted last month for a rate increase and others said they might follow suit soon if there were signs that the economy was maintaining the momentum of last year.
Despite the stronger-than-expected headline growth figure in yesterday’s PMI, the survey also suggested that consumers were cutting back on luxuries. Hotels and restaurants, gyms and hairdressers ranked among the worst-performing services in the first three months of the year.
“Much of the disappointment in growth so far this year has been evident in consumer-oriented sectors, in part linked to spending and incomes being squeezed by higher prices,” IHS Markit chief business economist Chris Williamson said.
Official data showed modest improvement for one of Britain’s most persistent economic headaches, weak productivity.
Output-per-hour grew at the fastest pace in more than a year in the final three months of last year, but remained well below the average rate seen before the financial crisis.
The figures did little to challenge expectations that this year will be a tough one for many Britons.
Nearly half of British households plan to cut spending as worries about inflation escalate, according to a separate survey from pension provider Scottish Friendly and the Social Market Foundation think tank.
Official data last week showed that real household disposable income — a measure of spending power in the fourth quarter of last year — saw its biggest quarter-on-quarter decline in nearly three years.
The all-sector PMI, covering manufacturing, construction and services, rose a full point to 54.7 last month.
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