Rapid growth in Britain's service sector eases

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Filomena Scalise

London - Growth in Britain's service sector slowed a little last month, a survey showed on Wednesday, breaking a run of upside data surprises but still providing a strong backdrop for the government's budget update later this week.

Financial data company Markit said its services purchasing managers' index eased to 60.0 in November from a 16-year high of 62.5 in October.

That was two points below the median forecast in a Reuters poll and a lower reading than any of the 24 analysts surveyed had predicted.

The strength of this week's manufacturing and construction surveys, however, means Britain remains on track to register an acceleration in fourth-quarter growth.

Taking the three indices together, Markit predicts GDP growth will accelerate from 0.8 percent in the third quarter to more than 1.0 percent in the final three months of the year.

“Although signalling an easing in the rate of growth in November, the survey of the services economy continues to signal an impressively strong rate of expansion,” said Markit's chief economist Chris Williamson.

Finance minister George Osborne is expected to announce the biggest upgrade to official growth forecasts in a decade on Thursday when he makes a twice-yearly budget statement to parliament.

The unexpectedly strong economic rebound since his March budget may give him scope to address rising living costs - a political flashpoint ahead of a national election in May 2015. But he is likely to stick to his austerity programme, the merit of which he believes is becoming increasingly apparent.

A laggard among the world's industrialised nations until this year, Britain now has one of the fastest-growing economies with an annualised growth rate of more than 3 percent.

But there remain some headwinds to the recovery. Wages are rising more slowly than inflation, the household sector is heavily indebted and firms remain reluctant to invest.

There are also signs that price pressures are starting to build - something that may worry the Bank of England which has pledged to keep interest rates at a record low until the recovery is assured.

Input cost inflation hit a nine-month high and output prices rose at their fastest pace since May 2011.

The employment component of Wednesday's survey slipped to 54.2 from 56.2, but the new business index remained close to October's series high, offering hope that growth might pick up again in the coming months.

The composite index gauging activity in both the manufacturing and services sectors slipped to 60.5 from October's record high of 61.6. - Reuters


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