Pace of expansion slows in UK services

City A.M. Reporter
HEAVY snow and a rise in sales tax led to an unexpected slowing in Britain’s service sector last month, but investors stuck with bets the Bank of England (BoE) would halt its pro-growth quantitative easing programme today.

Separate surveys showing signs of revival in British consumer confidence and the labour market supported the view that the economy remained on a recovery track, albeit a tough one.

The more than two point fall in the CIPS/Markit services PMI index – to 54.5 from 56.8 – contrasted with a sharp rise in the equivalent manufacturing index earlier this week.

“The heavy snow appears to have hit services harder than manufacturing in January,” said Paul Smith, senior economist at Markit.

“Whereas manufacturers were often able to make up for lost production days, service providers, especially consumer-facing firms, simply saw fewer customers.”
The pound slipped on the data, which reminded investors of the fragility of Britain’s recovery.

However reaction in the debt markets was limited, with little change in the widely-held view that the BoE would call time on its massive gilt-buying programme today.

Such a move would mark a first step towards normalising monetary policy after an unprecedented loosening in response to the financial crisis in 2008.

However, concerns over the strength of the recovery, not least because of a looming government spending squeeze, means the BoE is not expected to start raising interest rates until the second half of the year at the earliest.