UK services growth slows but economy remains robust

The UK economy has slowed up at the end of 2017, which accompanies concern of growing inflation. However, with strong growth in manufacturing and construction sectors the economy remains robust.

London financial district, looking upwards
Growth in the UK’s services sector, which accounts for more than three-quarters of the nation’s GDP, lost some momentum in November after hitting a six-month high the previous month.

UK economy becoming more robust

The IHS Markit/CIPS purchasing managers’ index (PMI) for the sector showed that growth stood at 53.8 last month in an index where a reading above 50 indicates expansion. The PMI reached 55.6 in October.Analysts said that the continued growth in services, allied with much better than expected PMIs for the manufacturing and construction sectors, indicated that the UK economy was seeing “robust” growth at the year’s end.
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Inflation potential to rise

However, one worrying feature was that the services PMI showed that prices charged by companies rose last month at their fastest pace in nearly 10 years, potentially exacerbating the inflation that the Bank of England is so keen to reduce.Chris Williamson, chief business economist with IHS Markit, said prices hit their highest level since February 2008, and stood at the second highest figure since the survey began in 1996.“Rising oil prices were again to blame in November, with firms also reporting the need to pass higher costs of a wide variety of other inputs on to customers as a result of the weak pound having driven up import prices,” he said. “As such, the survey data suggest that inflationary pressures have yet to peak.“However, despite the weaker service sector expansion, the latest survey data indicate that the economy is on course to enjoy robust growth in the fourth quarter. The survey data are so far consistent with the economy growing at a quarterly rate of 0.45 per cent in the closing months of 2017.”

Charges by services companies continue to grow

Howard Archer, chief economic adviser to the EY Item Club, added, “There was disappointing news on the prices front in November. Prices charged by services companies picked up for a fifth month running in November to be at the highest level since February 2008.“Input prices picked up in November and were among the strongest since the first half of 2011 as they were lifted by increased costs for energy, food, fuel, imported items and staff salaries”Duncan Brock, director of customer relationships at the Chartered Institute of Procurement & Supply (CIPS), said, “November’s data painted a disappointing portrait of a sector struggling against Brexit-related uncertainty and a weaker economic outlook, as fewer jobs were created and overall activity dropped back from October’s six-month high.“Businesses could no longer fight against the tide of higher prices for food, fuel and salaries as input cost inflation remained close to its strongest for six years, and businesses passed these increases on to consumers at the fastest rate since February 2008.”

Eurzone continues strong growth

Meanwhile, the economy of the eurozone countries enjoyed another strong month in November, when Markit’s composite PMI rose to 57.5, up from 56.0 in October. Companies reported acceleration in business activity, encouraging them to take on more staff.Mr Williamson said, “The eurozone enjoyed a bumper November, setting the scene for a buoyant end to the year. The PMI surveys signalled faster growth across the board, led by stronger expansions in France and Germany alongside a marked upturn in the pace of growth in Italy. Business conditions in Spain also remained encouragingly resilient in the face of heightened political uncertainty, albeit on course for the weakest quarter of the year.“Heading into 2018 the big questions will be how long this growth spurt can be sustained, and whether price pressures will rise. Given the strength of order book growth and hiring, as well as the elevated level of business optimism, the eurozone should start the New Year on a solid footing.“If survey data remain buoyant in December, expect to see 2018 growth forecasts revised higher. In terms of prices, core inflation has so far remained subdued, but the PMI price gauges and indicators of depleted capacity suggest that inflationary pressures will pick up next year.”Read more about current issues facing global mobility professionals in the Winter issue of our magazine, coming soon.For related news and features, visit our Enterprise section. Look out for the launch of 2018's Relocate Awards, entry open in January.Relocate’s new Global Mobility Toolkit provides free information, practical advice and support for HR, global mobility managers and global teams operating overseas.Global Mobility Toolkit download factsheets resource centreAccess hundreds of global services and suppliers in our Online DirectoryClick to get to the Relocate Global Online Directory

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