UK economy shows signs of losing steam

Chris Papadopoullos
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THE UK’s economic growth may have slowed in the final three months of the year, new survey data shows.

The service sector purchasing managers index (PMI) compiled by Markit slowed to 55.8 from 58.6 in November, according to figures published yesterday.

A score above 50 represents growth.

The UK’s service sector makes up approximately 80 per cent of total output of goods and services.

The drop in the PMI takes it to its lowest value for 19 months. However, the PMI is not always an accurate indicator of the service sector’s contribution to GDP and has been volatile recently.

“The indicators are still consistent with above-trend growth, but only marginally so. The key question is whether December’s weakness is a function of volatility, or something more long-lasting,” said Dominic Bryant, an economist at BNP Paribas.

The decline in the services PMI follows dips in the PMIs for other sectors.

“Weaker rates of expansion were seen in services, manufacturing and construction in December,” said Chris Williamson, chief economist at Markit, who believes the PMIs point to a UK slowdown.

“The surveys suggest the economy grew by 0.5 per cent in the fourth quarter [October to December].”

In third quarter (July to September) the economy grew by 0.7 per cent.

Economists from Daiwa Capital also expect GDP growth to have slowed to 0.5 per cent in the final three months of the year on the back of subdued PMIs. This would knock annual GDP growth down to 2.7 per cent, below the Bank of England’s forecast of 3.5 per cent in its last inflation report.

Cheap oil could provide a timely boost to the UK.

“Looking ahead, the halving of the oil price over the last six months should reinvigorate the recovery soon, by boosting consumers’ real incomes and making more production lines viable again,” said Samuel Tombs from Capital Economics.