UK services activity expanded at the slowest pace in five months in February as cautious consumers curbed their spending in the wake of the Brexit-related uncertainty.
The headline services Purchasing Managers’ Index dropped to 53.3 in February from 54.5 in January, survey data from the Chartered Institute of Procurement & Supply and IHS Markit showed Friday. This was the weakest expansion since September and stayed below the expected score of 54.0.
Nonetheless, the reading was above the 50.0 threshold that separates growth from contraction.
The survey showed that squeezed consumer finances and increased operating costs acted as a brake on new business growth. As a result, new business expanded at the slowest pace in five months.
Nonetheless, a moderate pace of job creation was maintained across the service economy in February. Additional staff intake was linked to long-term expansion plans and new product development.
Moreover, business confidence remained strong, with service providers indicating that optimism was little-changed from the post-referendum high recorded at the start of this year.
Driven by weaker currency, service sector cost inflation accelerated to its fastest for eight-and-a-half years in February.
Policymakers are likely to continue to stress the need to look through any further upturn in inflation and focus instead on the need to keep policy accommodative in the face of a likely further slowing in the pace of economic growth in 2017, he noted.The PMI surveys are collectively signaling GDP growth of 0.4 percent in the first quarter, Chris Williamson, chief business economist at IHS Markit, said.
Paul Hollingsworth, a UK economist at Capital Economics, said there are a number of headwinds that are likely to continue to weigh on growth this year. However, he remained more optimistic than most about the ability of the UK economy to face these headwinds.
Looking ahead, IHS Markit Economist Howard Archer said he suspects that consumer services activity will be increasingly pressurized by consumers’ purchasing power weakening over the coming months as inflation rises appreciably and earnings growth is muted.