Photographer: Simon Dawson/Bloomberg

U.K. Services Pickup Keeps Economy on Track to Maintain Momentum

  • Sector grew at fastest pace in 10 months in November
  • Composite gauge signals fourth-quarter economic growth of 0.5%

The U.K. services sector grew at the fastest pace in 10 months in November, keeping the economy on track to maintain its pace of expansion this quarter.

IHS Markit’s activity gauge rose to 55.2 from 54.5 in October, beating the median forecast of economists for a reading of 54. An all-sector index that includes construction and manufacturing also rose to a 10-month high, indicating economic growth of 0.5 percent in the three months through December.

While the economy is expanding at a solid pace, confidence among services firms fell to the lowest since July last month. Respondents linked the weaker sentiment to political uncertainty surrounding the U.K.’s decision to leave the European Union as well as growing inflation pressures. The latter -- which is also hitting manufacturers -- has been fueled by the pound’s 15 percent decline since the Brexit vote in June.

Bank of England Chief Economist Andy Haldane noted the changed growth and inflation backdrop on Friday and said he had a neutral view on the next interest-rate move after officials cut the benchmark in August.

Haldane, among the most dovish of BOE policy makers, also said there are grounds for not moving too quickly toward a rate increase. Governor Mark Carney may share his latest policy thoughts when he delivers a speech in Liverpool later on Monday.

“The odds will continue to shift away from the Bank of England adding more stimulus,” said Markit Chief Economist Chris Williamson. “However, any policy tightening still seems a long way off given the uncertainty facing the U.K. economy.”

Markit’s construction index rose to an eight-month high in November and its manufacturing gauge slipped to a four-month low, it said earlier this week.

A separate measure of factory conditions by industry group EEF improved this quarter with both output and orders growing for the first time in more than a year. That momentum is set to continue next quarter as the benefit of the pound’s slide helps foreign demand, the organization said.

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