FURTHER evidence that the UK's economic recovery has lost significant momentum has come in a survey showing expansion of the dominant services sector slowed to its weakest pace in 19 months in December.
The survey, published yesterday by the Chartered Institute of Purchasing and Supply, followed reports in recent days from CIPS showing a slowdown in growth of the UK manufacturing and construction sectors.
Meanwhile, the latest Bank of Scotland quarterly business monitor, published this week, signalled a sharp slowing of economic growth north of the Border in the three months to November. This survey showed a significant easing of expansion in both the production and services sectors during this three-month period.
Chris Williamson, chief economist at CIPS survey compiler Markit, estimated on the basis of the services, manufacturing, and construction surveys that the UK economy would have grown by 0.5 per cent in the fourth quarter. This rate of expansion, equivalent to an annualised pace of two per cent, would be adrift of the long-term average of about 2.75 per cent per annum.
The ONS is due to publish fourth-quarter UK growth figures later this month.
The UK economy grew by 0.7 per cent in the third quarter, with its pace of expansion having slowed from 0.8 per cent in the three months to June.
Mr Williamson said: "The surveys suggest the economy grew by 0.5 per cent in the fourth quarter, down from 0.7 per cent in the third quarter."
He added: "The loss of momentum towards the year-end will no doubt fuel worries that the upturn is too fragile to withstand higher interest rates. With policymakers clearly remaining extremely cautious in the timing of the first rate rise, the weaker pace of growth signalled by the surveys most likely means any hike in borrowing costs remains firmly off the agenda for the majority of Monetary Policy Committee members."
UK base rates have been at a record low of 0.5 per cent since March 2009.
CIPS's business activity index for services dropped from 58.6 in November to 55.8 in December on a seasonally-adjusted basis. While remaining well above the level of 50 deemed to separate expansion from contraction, the index signalled the weakest growth of activity in the sector for 19 months.
The business activity index for services had stood at 60.5 as recently as August.
Mr Williamson noted that the weighted-average output index from CIPS's manufacturing, construction and services surveys had fallen from 57.7 in November to 55.4 in December, its lowest since May 2013.
Contemplating the outlook, Mr Williamson cited geopolitical tensions, the eurozone crisis, and uncertainty fuelled by the impending UK General Election.
He said: "With the outlook becoming more uncertain and the pace of economic growth fading at the end of 2014, the Bank of England's most recent forecast for the economy to grow by 2.9 per cent in 2015 is already looking too optimistic."
However, while highlighting the UK economy's loss of momentum, Mr Williamson believed it was too early to become concerned about a sharp slowdown.
He said: "It's too early to get worried about a sharp slowdown. After all, the latest PMI (purchasing managers' index) reading is still strong, merely down from unusually high levels earlier in the year and broadly in line with the average seen in the years leading up to the financial crisis."
Mr Williamson added: "Furthermore, even a 0.5 per cent expansion of GDP (gross domestic product) in the final quarter means the economy grew by 2.6 per cent over 2014 as a whole, which would be its best year since 2007, albeit weaker than previously thought due to recent revisions to the official GDP data in the first half of the year."
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