UK economy on track for steady growth after services jump

LONDON: Britain’s large services sector picked up more strongly than expected last month, bucking a slowdown for manufacturers and construction firms, but Brexit worries are dampening investment plans and confidence for the year ahead.
The IHS Markit/CIPS Purchasing Managers’ Index (PMI) increased to 54.3 in August from 53.5 in July, beating all forecasts in a Reuters poll of economists and rising further above the 50-mark that indicates growth.
Adding in manufacturing and construction sector data published earlier this week, the PMI pointed to a repeat of the overall economy’s 0.4 per cent quarterly growth rate recorded in the three months to June, IHS Markit said.
“(This is) a relatively robust and resilient rate of expansion that will no doubt draw some sighs of relief at the Bank of England after the rate hike earlier in the month,” IHS Markit’s chief business economist, Chris Williamson, said.
Britain’s economy has slowed since the June 2016 Brexit vote, its growth rate slipping from top spot among the Group of Seven group of rich nations to jostling with long-term laggards Japan and Italy for bottom place in the growth rankings.
Nonetheless, last month the Bank of England raised interest rates for only the second time in a decade, due to concerns that labour shortages and other capacity constraints will prevent inflation returning to its 2 per cent target in the short term.
Employment intentions in the services sector rose to a six-month high, but confidence for the year ahead slipped to its lowest since March, as businesses said Brexit uncertainty had made clients less willing to invest, for now.
British Prime Minister Theresa May has yet to agree the terms of Britain’s future relationship with the European Union, less than seven months before the country leaves the bloc.
Financial services accounted for much of the growth, and businesses reported softer demand from retailers, who are not directly covered by the services PMI.
Many consumers are feeling the strain of inflation that has been growing faster than their wages for much of the past decade.
“Given the increasingly unbalanced nature of growth and the darkening business mood, risks to the immediate outlook seem tilted to the downside,” Williamson said.
Firms in the PMI survey reported paying higher salaries to recruit hard-to-find staff and reduce employee turnover that was limiting their ability to complete some projects. Data showed record vacancies at a 43-year low in July, but this has not translated into widespread pay rises for the workforce as a whole.— Reuters