UK services companies’ overall expectations for growth in their activity levels over the coming year were at the weakest for three years in January, a key survey has shown.
The survey, published by the Chartered Institute of Procurement & Supply, showed a marginal pick-up in the pace of growth of the dominant services sector in January. However, CIPS noted the rate of expansion remained weaker than trend growth rates achieved in the period from 2013 to 2015.
CIPS’s business expectations index for the UK services sector dropped from 67.8 in December to 67.5 in January. This index has now fallen seven times in eight months.
Around 44 per cent of services companies predicted growth in activity on a 12-month view in the latest survey, with a decline forecast by nine per cent of respondents. This was the least-positive response for three years.
CIPS’s business activity index for the UK services sector edged up from 55.5 in December to 55.6 in January on a seasonally-adjusted basis.
While this index remained well above the level of 50 deemed to separate expansion from contraction, CIPS said: “Growth remained weaker than the trend pace shown over the current upturn, and the latest data signalled the
slowest rise in activity for the month of January since 2013.”
Economists including Jeremy Peat, visiting professor at the University of Strathclyde’s International Public Policy Institute, have expressed concern over the degree to which the UK economy is reliant on service sector growth amid continuing weakness in manufacturing.
CIPS’s survey, which excludes retail, showed a pick-up in the rate of employment growth in the services sector to the strongest in three months. However, the pace of employment growth signalled in January was weaker than the trend rates set in 2014 and 2015.
Chris Williamson, chief economist at CIPS survey compiler Markit, noted that the three purchasing managers’ surveys for January, covering UK manufacturing and construction as well as services, pointed collectively to a slight pick-up in the rate of UK economic growth.
He said the January surveys were consistent with gross domestic product rising at a quarterly rate of 0.6 per cent in the opening three months of 2016, compared with 0.5 per cent in the final three months of last year.
A quarterly pace of growth of 0.6 per cent, equivalent to an annualised pace of 2.4 per cent, would still be below the UK’s long-term average annual rate of expansion, put at about 2.75 per cent by Bank of England Governor Mark Carney.
Mr Williamson said: “Despite the uptick in growth, the increased uncertainty about the outlook and persistent lack of inflationary pressures mean the majority of policymakers will no doubt be more worried about avoiding another downturn than whether the economy needs higher interest rates.”
UK base rates have been at a record low of 0.5 per cent since March 2009.
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