U.K. Services Growth Unexpectedly Slows on Wet Weather: Economy


gsr-.354564U.K. services grew at the slowest pace in seven months in January as new business cooled and wet weather soaked the country.

An index based on a survey of purchasing managers declined to 58.3 from 58.8 in December, Markit Economics said in a report today in London. The median of 32 estimates in a Bloomberg News survey was for an increase to 59. Services in the euro area grew at a slower pace than initially estimated and retail sales slid, separate reports showed, underlining the fragility of the region’s recovery.

While the U.K. economy expanded at the fastest rate since 2007 last year, today’s report suggests the momentum may have eased at the start of 2014. A separate Markit release this week showed manufacturing also weakened in January. Bank of England officials start a two-day policy meeting today and will probably leave the key rate at a record low.

“Today’s decline represents a cooling off rather than a seizing up,” said Alan Clarke, an economist at Scotiabank in London. “This is merely consistent with the majority view that the quarter-to-quarter pace of U.K. gross domestic product growth will cool slightly” in 2014, he said.

The pound stayed lower against the euro and the dollar after the report and U.K. government bonds rose. Sterling slid 0.3 percent to $1.6279 at 10:30 a.m. London time, and depreciated 0.2 percent to 82.99 pence per euro. Ten-year gilt yields fell three basis points to 2.67 percent.

Confidence Soars

While the U.K. services gauge slipped for a third month, it stayed above the line that divides expansion from contraction for a 13th month and a measure of business confidence is at the highest since March 2010, Markit said. Services (PMITSEZ) account for the bulk of GDP.

The euro-area services measure rose to 51.6 in January from 51 in December, below the flash estimate of 51.9 published on Jan. 23, Markit said separately today. A composite measure of services and manufacturing in the currency bloc rose to 52.9 from 52.1. Retail sales fell 1.6 percent in December from the previous month, Eurostat said today.

“Despite the evident weakness in the retail sector, we think the recovery for the economy as a whole continues, but at an anemic pace,” James Ashley, an economist at RBC Capital Markets in London, said in reference to the euro-region. “Our indicator for total private consumption continues to point to a modest increase” at the end of 2013, he said.

Rate Decisions

The European Central Bank will keep its main refinancing rate at a record-low 0.25 percent when it announces its monthly policy decision tomorrow, according to 63 out of 66 economists in a survey. The remaining three predict the central bank will lower the rate to 0.1 percent. The BOE’s Monetary Policy Committee will keep its benchmark interest rate at 0.5 percent tomorrow, according to all 57 economists in a separate survey.

The “slight slowing” in U.K. services growth in January “reinforces our belief that the BOE will not only keep rates at 0.5 percent” tomorrow, “but also all through 2014,” said Howard Archer, an economist at IHS Global Insight. “The BOE will want to give the economy as much chance as possible.”

Markit’s U.K. manufacturing index declined to 56.7 last month from 57.2 in December, while its construction gauge climbed to 64.6 from 62.1, reports showed this week. Williamson said the three measures indicate quarterly GDP (UKGRABIQ) growth of 0.8 percent.

Optimism Climbs

“Although the pace of expansion slowed, we must remember that growth was exceptionally strong in previous months, and also that parts of the country saw record rainfall,” Chris Williamson, chief economist at Markit, said in today’s U.K. report. “With business optimism about the future reaching the highest for almost four years, we should see growth revive again in February.”

The U.K. report showed capacity at services companies was squeezed in January as backlogs rose at their sharpest rate since May 1997, Markit said. That was partly fueled by a shortage of staff, the group said. Companies increased payrolls for a 13th month.

Services firms raised their prices at the fastest pace in more than 2 1/2 years in January, while input costs also rose, Markit said.

The data contrast with a report from the British Retail Consortium, which showed shop-price inflation posted its biggest annual decrease since at least 2006 last month. Prices slid 1 percent from a year earlier, according to an index complied by the BRC and Nielsen published today.

The services industry in the U.S. probably grew at a faster pace last month, according to a survey before the report at 10 a.m. New York time. The Institute for Supply Management’s non-manufacturing index rose to 53.7 in January from 53 in December, the survey showed.