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| UK service sector recovers after Brexit dip but inflation looms UK service sector recovers after Brexit dip but inflation looms | |
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| The UK economy is on course for a solid finish to the year after activity in the services sector picked up and consumer spending continued to rise last month. But there were fresh signs of concern about inflation as the weak pound raises the cost of fuel and other imports. | The UK economy is on course for a solid finish to the year after activity in the services sector picked up and consumer spending continued to rise last month. But there were fresh signs of concern about inflation as the weak pound raises the cost of fuel and other imports. |
| A closely watched survey of firms in Britain’s dominant services sector, which spans banking to hotels, showed they enjoyed the fastest growth since January as they continued to recover from a short, sharp downturn following the Brexit vote. The Markit/CIPS UK services PMI [pdf] report chimed with other indicators suggesting businesses and consumers have shrugged off the referendum result for now. | A closely watched survey of firms in Britain’s dominant services sector, which spans banking to hotels, showed they enjoyed the fastest growth since January as they continued to recover from a short, sharp downturn following the Brexit vote. The Markit/CIPS UK services PMI [pdf] report chimed with other indicators suggesting businesses and consumers have shrugged off the referendum result for now. |
| The survey’s compilers, Markit, said the economy was on course to grow 0.5% in the final three months of the year based on the service sector report and its polls of the smaller construction and manufacturing sectors last week. That would match the pace of GDP growth in the third quarter and defy economists’ post-referendum warnings of a sharp slowdown this year. | The survey’s compilers, Markit, said the economy was on course to grow 0.5% in the final three months of the year based on the service sector report and its polls of the smaller construction and manufacturing sectors last week. That would match the pace of GDP growth in the third quarter and defy economists’ post-referendum warnings of a sharp slowdown this year. |
| Separate figures from Barclaycard released on Tuesday showed consumer spending grew 5.1% in November, the second highest year-on-year increase since it started publishing data five years ago. That followed record growth of 5.5% in October. | Separate figures from Barclaycard released on Tuesday showed consumer spending grew 5.1% in November, the second highest year-on-year increase since it started publishing data five years ago. That followed record growth of 5.5% in October. |
| The increase reflected an ongoing trend for people to spend money on meals out and cinema trips as well as the fact they had to pay more for essentials in November. Fuel prices were a big part of that, with spending on petrol up 11.7% on a year ago as a litre of unleaded petrol cost 116p, compared with 108p at this point in 2015. | The increase reflected an ongoing trend for people to spend money on meals out and cinema trips as well as the fact they had to pay more for essentials in November. Fuel prices were a big part of that, with spending on petrol up 11.7% on a year ago as a litre of unleaded petrol cost 116p, compared with 108p at this point in 2015. |
| The figures chime with warnings from economists and the Bank of England that higher inflation and lacklustre pay growth will squeeze living standards next year and could hit an economy that has so far proved resilient to the Brexit vote. | The figures chime with warnings from economists and the Bank of England that higher inflation and lacklustre pay growth will squeeze living standards next year and could hit an economy that has so far proved resilient to the Brexit vote. |
| Commenting on the Barclaycard figures, its managing director, Paul Lockstone, said there had been a noticeable rise in the amount households were spending on necessities. | Commenting on the Barclaycard figures, its managing director, Paul Lockstone, said there had been a noticeable rise in the amount households were spending on necessities. |
| “Though there is little visible evidence of households yet being forced to decide between filling up the car or eating out with friends, the narrowing gap between essential and non-essential spend growth means they may need to look more carefully at how they allocate their cash once Christmas is out of the way,” said Lockstone. | “Though there is little visible evidence of households yet being forced to decide between filling up the car or eating out with friends, the narrowing gap between essential and non-essential spend growth means they may need to look more carefully at how they allocate their cash once Christmas is out of the way,” said Lockstone. |
| The pound’s sharp fall since the Brexit vote has raised the cost of imports to the UK and services companies were also feeling the pressure of higher fuel prices last month as well as more expensive food imports and pricier business travel. | The pound’s sharp fall since the Brexit vote has raised the cost of imports to the UK and services companies were also feeling the pressure of higher fuel prices last month as well as more expensive food imports and pricier business travel. |
| Markit’s poll of services companies showed those inflationary pressures combined with political uncertainty knocked business sentiment last month. It weakened for the first time since July, with companies also citing Donald Trump’s victory in the race for the US presidency as a fresh source of uncertainty. | Markit’s poll of services companies showed those inflationary pressures combined with political uncertainty knocked business sentiment last month. It weakened for the first time since July, with companies also citing Donald Trump’s victory in the race for the US presidency as a fresh source of uncertainty. |
| But for now, companies in the sector are enjoying strong growth, with the weak pound helping to boost overseas demand. The headline reading on the services survey rose to 55.2 in November from 54.5 the month before. That beat economists’ forecasts for it to ease to 54.0 in a Reuters poll of economists. The index has now been above the 50-mark separating growth from contraction for four months. | But for now, companies in the sector are enjoying strong growth, with the weak pound helping to boost overseas demand. The headline reading on the services survey rose to 55.2 in November from 54.5 the month before. That beat economists’ forecasts for it to ease to 54.0 in a Reuters poll of economists. The index has now been above the 50-mark separating growth from contraction for four months. |
| Chris Williamson, the chief business economist at IHS Markit, commented: “The further upturn in the vast services sector shows that the pace of UK economic growth remains resiliently robust in the fourth quarter, despite ongoing uncertainty caused by Brexit.” | Chris Williamson, the chief business economist at IHS Markit, commented: “The further upturn in the vast services sector shows that the pace of UK economic growth remains resiliently robust in the fourth quarter, despite ongoing uncertainty caused by Brexit.” |
| Retailers reported that the Black Friday sales event had also boosted sales for part of November. Figures from the British Retail Consortium showed non-food sales were about 40% higher in the week including Black Friday than in other weeks during the month. | Retailers reported that the Black Friday sales event had also boosted sales for part of November. Figures from the British Retail Consortium showed non-food sales were about 40% higher in the week including Black Friday than in other weeks during the month. |
| Overall, like-for-like retail sales were up 0.6% in November on a year ago. BRC chief executive Helen Dickinson commented: “Consumer spending remains stable, although very much value-driven with a focus towards products on promotion.” | Overall, like-for-like retail sales were up 0.6% in November on a year ago. BRC chief executive Helen Dickinson commented: “Consumer spending remains stable, although very much value-driven with a focus towards products on promotion.” |