U.K. Services Index Unexpectedly Falls to Nine-Month Low

U.K. services growth unexpectedly slowed in March and measures of new business and hiring by companies declined.

A Purchasing Managers’ Index declined to 57.6 from 58.2 in February, Markit Economics said in London today. The median of 34 estimates in a Bloomberg News survey was for an unchanged reading of 58.2. The index remains above the 50 level that divides expansion from contraction.

While manufacturing and construction also grew at a slower pace in March, Markit said its three industry reports indicate the U.K. economy expanded at least 0.7 percent in the first quarter. The pound has strengthened this year as the recovery gained traction and Bank of England officials have said they won’t risk choking off growth by tightening policy too soon.

“Policymakers will be concerned that growth could ease further if sterling continues to appreciate,” said Chris Williamson, chief economist at Markit. “But there’s no evidence to suggest that any slowdown will be anything other than modest.”

The pound weakened against the dollar and was down 0.1 percent at $1.6613 as of 9:37 a.m. in London. It rose earlier after BOE Governor Mark Carney said an interest-rate increase before the May 2015 general election was a possibility.

“We have been as explicit as we can about the nature of adjustments to interest rates, but we can’t be specific,” Carney said in an interview with the Northern Echo newspaper. “But we are absolutely clear that it will happen independent of the political cycle.”

New Business

A gauge of new business at services companies fell to 58.5 in March from 59.2 in February, Markit said. That’s the lowest reading since May. Hiring slowed last month, though firms continued to add workers to “keep on top of rising workloads.”

“A number of panellists reported that pipeline business was healthy, leading to positive growth projections,” Markit said. It added that confidence among executives remains “firm.”

While input-price inflation slowed in March, firms reported wage-cost pressures, signaling growing confidence among workers as the economy strengthens. Output prices were little changed on the month, in part due to “strong competition.”

Separately, Markit said its composite PMI for the U.K. slipped to 57.6 last month from 58.2 in February. In the euro area, a composite PMI of services and manufacturing slipped to 53.1 in March from 53.3 in February. That’s just below a flash estimate of 53.2 released last month.

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