UK service sector growth eases in Jan, optimism at 1½-year high

UK business activity growth eased in January after a strong end to 2016. Survey from IHS Markit and CIPS showed Friday that seasonally adjusted UK ‘all-sector’ PMI fell from December’s 17-month high of 56.5 to 55.2 in January.

The current reading still point to a buoyant start to 2017 for the economy and is indicative of GDP rising by a robust 0.5 percent in the first quarter if current growth is sustained in coming months. The survey data come on the heels of the Bank of England’s updated view that the economy and adds some justification to the Bank of England’s recent upgraded outlook for the economy in 2017.

Inflationary pressures march higher in January which remains the main area of concern. The rate of input cost inflation across the three sectors accelerated sharply in January to its joint-highest since before the global financial crisis, hitting a record high in manufacturing, a post-crisis high in construction and a six-year peak in services.

These higher costs are feeding through to higher selling prices, which will inevitably put upward pressure on consumer prices. Average prices charged for goods and services rose in January at the fastest rate since April 2011. Employment in the UK service sector rose for the sixth consecutive month in January. However, the rate of job creation slowed to a five-month low.

"With business optimism rising for the second month in a row, the sector has defied the Brexit doomsayers and is poised to maintain growth in 2017. With one eye firmly on the inflationary landscape, which is likely to become a permanent fixture in the coming months, the sector will be challenged to maintain its current trajectory.” said David Noble, Group CEO at the Chartered Institute of Procurement & Supply.