U.K. Services Accelerate as Domestic Demand Drives Growth

  • Sector expands at fastest pace in four months in November
  • Surveys show economy set to grow 0.6% in final quarter

A U.K. services gauge rose more than economists forecast in November as new business picked up.

Markit Economics’ purchasing-managers’ index rose to 55.9 -- indicating the fastest pace of growth in four months -- from 54.9 in October. Economists in a Bloomberg survey had forecast a reading of 55.

The survey suggests Britain’s consumer-driven economy is weathering the global headwinds flagged by the Bank of England last month, with the services index remaining well above the 50-level that divides expansion from contraction. Markit said this report as well as its latest surveys of manufacturing and construction show economic growth is on course to accelerate to 0.6 percent in the fourth quarter.

An increase in input prices last month was linked to firms preparing for the introduction of a higher minimum wage, according to the report published Thursday in London.

The U.K. “continues to enjoy the ‘Goldilocks’ scenario of solid economic growth and low inflation,” said Chris Williamson, an economist at Markit in London. “The upturn in earnings growth raises question marks over just how long inflation, and therefore interest rates, will remain low for.”

Pound, Dollar

The pound was little changed at $1.4945 as of 10:40 a.m. in London. Sterling appreciated 0.5 percent to 70.67 pence per euro, as the prospect of more stimulus from the ECB weighed on the euro-area currency.

The volume of new business rose at the fastest pace in four months, Markit said, as firms introduced new products and gained confidence in the global economy. Nevertheless, business expectations remained near a 2 1/2-year low and employment growth slowed.

Surveys this week showed manufacturing and construction growth cooled last month. A composite index held at 55.7, pointing to growth picking up from 0.5 percent in the third quarter, Markit said. Services account for about three quarters of U.K. output.

The services survey “reinforces our view that the economy will reverse its temporary slowdown” seen in the third quarter, said Ruth Miller of Capital Economics. “After the deterioration in the manufacturing and construction sectors in the survey data already released, it is clear that the economic recovery remains almost entirely dependent on the services sector.”

The Bank of England announces its next policy decision on Dec. 10. Traders are betting officials will keep the benchmark rate at a record-low 0.5 percent through 2016, Sonia forward contracts show.

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