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UK services firms defy global jitters, but risks lie ahead: PMI

[LONDON] Britain's huge services sector was unscathed by growing worries about the global economy last month but firms are concerned about risks ahead including a referendum on European Union membership, a survey showed on Wednesday.

The Markit/CIPS services purchasing managers' index (PMI) edged up to 55.6 in January, a level it has surpassed only once since July last year. The sign that Britain's economy started 2016 strongly will be noted by the Bank of England.

Economists in a Reuters poll had expected the index to slow to 55.3 after dipping slightly to 55.5 in December.

Britain's economy - which relied on the services sector to drive growth at the end of last year - looks set to expand by 0.6 per cent in the first quarter of 2016, picking up a bit of speed from estimated growth of 0.5 per cent in the last three months of last year, Markit said.

A reading of Britain's smaller manufacturing sector published on Monday showed the factory sector also grew more strongly expected, while think tank NIESR said earlier it expects Britain's economy to grow 2.3 per cent this year, a slight improvement on 2015.

But Chris Williamson, chief economist at Markit, which compiles the survey, said "cracks continue to appear in the country's resilience to the various headwinds".

Order book backlogs fell at the fastest rate for almost three years and the mood among businesses in the services sector was its weakest since 2013.

The survey showed companies were worried about China's economic slowdown, financial market jitters, higher interest rates in the United States, more austerity at home and the possibility of a 'Brexit' from the European Union.

British finance minister George Osborne has warned that the country faces a "dangerous cocktail" of risks from the global economy. Many economists say the government's decision to hold a referendum on Britain's EU membership may also hurt the economy by delaying investment decisions by companies.

The referendum is widely expected to take place in June. "The increased uncertainty about the outlook and persistent lack of inflationary pressures means the majority of (BoE) policymakers will no doubt be more worried about avoiding another downturn than whether the economy needs higher interest rates," Markit's Williamson said.

Britain's central bank is expected to say on Thursday that it is keeping interest rates at their record low of 0.5 per cent where they have been kept since 2009. The BoE is also due to deliver its latest set of forecasts which are expected to show Britain's near-zero inflation rising only very slowly this year.

The rise in input prices for services firms in January was among the weakest of the past six years, despite signs of some pressure on companies to increase pay, Markit said.