Service sector growth jumps to eight-month high

City A.M. Reporter
Activity in the dominant services sector expanded at its fastest pace in eight months in January as business recovered after December's snow disruption, a survey showed, which may bolster the case for higher rates.

The purchasing managers' survey from Markit/CIPS also showed a record jump in input cost inflation in the services sector, which is likely to worry Bank of England policymakers who hold their rate-setting meeting next week.

The headline services PMI activity index rose to 54.5 in January from a 20-month low of 49.7 in December, the highest since last May and well above forecasts for a reading of 51.4.

Markit said some businesses had received additional orders in January, displaced from December because of the snow.

"The service sector rebounded in January as the country thawed out from the coldest December in a century," said Chris Williamson, chief economist at survey compiler Markit.

"But the underlying trend remains one of only very modest growth, and well down on the strong rate seen in the first half of last year," he added.

He said that taken together, this week's PMI surveys indicated the economy was growing at an underlying quarterly rate of around 0.4 per cent.

The Bank's Monetary Policy Committee is divided over whether to raise interest rates from record lows to tackle above-target inflation or wait longer to see how the recovery fares.

Britain's economy contracted by 0.5 per cent in the last quarter of 2010, a worrying development for a government that is introducing deep cuts to public spending.