BLBG: U.K. Services Growth Accelerated in January as Costs Fell
(Bloomberg) -- Growth at U.K. service companies exceeded economists’ forecasts in January, as businesses hired more staff and raw material costs fell.
Markit Economics said Wednesday its Purchasing Managers’ Index rose to 57.2 from 55.8 in December. The median estimate of economists in a Bloomberg News survey was for an increase to 56.3. A reading above 50 indicates expansion.
Measures of construction and manufacturing published by Markit this week also rebounded, suggesting the U.K. is weathering weakness in Europe, its biggest trading partner. Bank of England officials start their two-day policy meeting today, and will probably leave the key rate at a record low while inflation remains below their 2 percent target.
“The data will allay fears that the economy is slowing sharply,” said Chris Williamson, chief economist at Markit. The prospect of a further slowdown in inflation suggests “little likelihood of the Monetary Policy Committee voting to hike interest rates anytime soon.”
The pound was trading at $1.5190 as of 10:46 a.m. London time, up 0.2 percent on the day.
With neither the Conservatives nor the Labour opposition on course to gain a parliamentary majority in the May 7 general election, there are “no signs of political uncertainty infecting plans,” said Rob Wood, an economist at Berenberg Bank in London. A “bull market” in talk about political instability “is not translating into a bear market for business expansion,” he said.
Skills Shortage
Some service companies surveyed said they faced a shortage of skilled staff, feeding into a surge in hiring that was the second-strongest on record, Markit reported. Its measure of input costs dropped to the lowest since June 2009.
Companies are benefiting from cheaper oil after the slump in Europe slowed U.K. economic growth to 0.5 percent in the final three months of 2014. Markit’s composite index of services and manufacturing rose to 56.7 from 55.3 in December.
Rising wages and an inflation rate heading toward zero are also boosting the spending power of consumers. Simon Wells at HSBC Holdings Plc is among economists who have raised their 2015 growth forecasts to reflect the boost to activity from lower commodity costs.
All 47 economists in a Bloomberg survey forecast the BOE will leave its key rate at 0.5 percent. The bank will announce the decision at noon Thursday in London.
