UK services growth picks up though warning signs cloud outlook

[LONDON] UK services activity unexpectedly accelerated in September and price pressures increased, according to a report by IHS Markit.

But the survey also showed that growth in new business fell to the weakest in more than a year and a measure of executives' confidence declined. Some firms said that clients were holding off on major investment decisions because of Brexit uncertainty.

The report paints a mixed picture for the Bank of England, where policy makers have turned hawkish and indicated they may be close to raising interest rates. While the pace of economic growth remains modest, a buildup of inflationary pressures is raising concern at the central bank.

The economy is "struggling with the unwelcome combination of sluggish growth and rising prices, presenting a dilemma for policy makers," said Chris Williamson, chief business economist at Markit.

A services Purchasing Managers Index by Markit increased to 53.6 last month from 53.2 in August. Economists had forecast a reading of 53.2. Input costs advanced at the fastest pace in seven months.

The report, combined with weaker manufacturing and construction surveys earlier this week, suggest the economy grew 0.3 per cent in the third quarter, according to Markit.

That would match the pace of the previous three months.

In addition, the all-sector PMI fell to a seven-month low in September, and Markit said it's now at a level that would normally be associated with a loosening of monetary policy rather than a tightening.

"The rise in price pressures will pour further fuel on expectations that the Bank of England will soon follow-up on its increasingly hawkish rhetoric," Mr Williamson said.

"However, the decision is likely to be a difficult one."

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