UK service sector growth falls more than expected in January

UK service sector growth eased more than expected in January, according to data released on Friday.

The Markit/CIPS services purchasing managers’ index declined to 54.5 from 56.2 in December, missing expectations for a reading of 55.8. A level above 50 indicates expansion while a reading below signals contraction.

This was the first time the index fell since September and the reading marked the weakest expansion in three months.

Chris Williamson, chief business economist at IHS Markit, said: “Service sector growth eased after a strong end to 2016, but the January surveys still point to a buoyant start to 2017 for the UK economy. The PMI surveys are collectively signalling that GDP will increase by a robust 0.5% in the first quarter, if current growth is sustained in coming months.

“Encouragingly, optimism about the coming year has risen to its highest in one-and-a-half years, improving across the board in all sectors to suggest that January’s slowdown may only be temporary. The main area of concern is the extent to which companies’ costs are rising across the economy, with the rate of inflation accelerating to a pace not seen since before the global financial crisis.

“There is evidence that higher costs are deterring some companies from taking on extra staff, with the January surveys finding employment to have increased at the slowest rate since August. Only construction companies stepped up their hiring at the start of 2017.”