U.K. Services Firms Start to Crack as Risks to Growth Mount

U.K. Service PMI Rises to 55.6 as Confidence Falls
  • China slowdown, market jitters and `Brexit' cloud outlook
  • Firms' confidence slides to lowest level in three years

Confidence at U.K. services companies fell to the lowest in three years last month as a mounting litany of threats took its toll.

While Markit Economics said on Wednesday that its headline activity index for the sector rose in January, indicators of sentiment and order backlogs mean there’s little reason for optimism.

The report comes a day before the Bank of England announces its latest policy decision. Economists forecast that it will leave the key interest rate at a record low and cut its near-term growth and inflation projections. While the economy is growing, risks from China’s slowdown and the upcoming referendum on European Union membership have cast a pall over the outlook.

“Cracks continue to appear in the country’s resilience to the various headwinds,” said Chris Williamson, chief economist at Markit. He cited “worries about a Chinese hard landing, financial-market jitters, higher interest rates in the U.S., more austerity at home and the possibility of ‘Brexit.”’

The services Purchasing Managers Index rose to 55.6 in January from 55.5 in December, defying economists’ predictions for a decline to 55.4. Markit’s composite of services, manufacturing and construction increased to 56.1 from 55.3, and Markit said the gauge is consistent with quarterly economic growth of about 0.6 percent. That’s up from 0.5 percent in the fourth quarter.

The pound rose 0.3 percent to $1.4450 at 9:37 a.m. It appreciated 0.3 percent to 75.56 pence per euro.

Dan Hanson, an economist at Bloomberg Intelligence, said the Markit survey for January indicates the economy carried momentum into 2016 and may ease fears at the BOE that growth could slow sharply in 2016.

“BI Economics continues to view the growth outlook as one of only moderation relative to the pace achieved across 2013 and 2014,” he said. “Although the risks are still skewed to the downside.”

(Updates with composite PMI, comment starting in fifth paragraph.)
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