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UK services growth slows on Brexit-fuelled costs surge

41308670 - 26_01_2017 - (FILE) BRITAIN ECONOMY GROWTH.jpg
Britain's annual inflation rate steadied in July, with an expected rise failing to materialise as the pound recovers from a Brexit-fuelled slump, official data showed Tuesday.

[LONDON] Britain's vital services sector slowed in January for the first time in four months, with activity hampered by a Brexit-fuelled surge in costs, a survey showed Friday.

The Purchasing Managers' Index (PMI) for the nation's services industry fell to 54.5 in January, down from 56.2 in August, data compiler IHS Markit revealed in a statement.

That undershot market expectations of 55.8 and was the slowest rise since October for the sector, which accounts for some 80 per cent of British economic growth.

Cost pressures have loomed large as the pound has been dogged by Britain's looming EU exit. Input price inflation accelerated to its highest level since March 2011.

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"The main area of concern is the extent to which companies' costs are rising across the economy," said IHS Markit economist Chris Williamson.

The services PMI did however hold above the critical 50 level - which indicates expansion. A reading underneath 50 indicates contraction.

"Service sector growth eased after a strong end to 2016, but the January surveys still point to a buoyant start to 2017 for the UK economy," said Williamson.

He added that recent survey data suggested that the British economy would expand by a robust 0.5 per cent in the first quarter, or three months to the end of March.

The economy had chalked up 0.6-per cent growth in the final quarter of 2016, despite mounting concern over the impact of Britain's June 23 Brexit referendum.

"The stronger-than-expected growth since the Brexit vote has been entirely due to much stronger than expected household consumption growth. It won't last," predicted UniCredit economist Daniel Vernazza.

"Inevitably, consumption growth will slow as a result of higher imported inflation and the impending squeeze on real household income growth."

Friday's survey data was published one day after the Bank of England ramped up its UK economic growth forecasts for the next three years, despite the threat of Brexit stormclouds.

Alongside news that the BoE had kept its key interest rate at a record low, the British central bank lifted its 2017 economic growth prediction to 2.0 per cent.

That matched the official 2016 growth rate and marked an upgrade from the BoE's prior forecast of 1.4 per cent.

Gross domestic product was set also to expand by 1.6 per cent in 2018 and 1.7 per cent in 2019. That was up from growth estimates of 1.5 per cent and 1.6 per cent respectively.

Britain's government will formally trigger the two-year EU divorce process by the end of March 2017.