United Kingdom services growth cools as costs dominate firms' concerns

British Pound Falls as UK Composite PMI Misses Forecasts

The service sector accounts for more than 75% of United Kingdom gross domestic product (GDP) and has been the cog at the heart of the UK's recovery since the financial crisis.

Reflecting robust expansions in both manufacturing and service sector activities, the Nikkei Composite Output Index posted at 52.3 for January 2017, slightly down from 52.8 in December 2016, signalling a solid expansion in overall output at private sector firms in Japan.

Activity in the U.S. services sector hit a 14-month high in January, according to data released on Friday.

There is evidence that higher costs are deterring some companies from taking on extra staff, with the January surveys finding employment to have increased at the slowest rate since August.

A similar Investec barometer for manufacturing painted a similar picture with new orders expanding at the fastest pace in 18 months. Business activity index declined to 51.9 in January 2017 from 52.3 in December 2016.

IHS Markit said the figures suggest 0.4% GDP growth for the first quarter, a figure largely in-line with estimates for the final three months of previous year.

Research group IHS Markit said its index of future expectations among United Kingdom firms - where scores above 50 show increasing levels of optimism about the year ahead - rose from 68.9 in December to 71.1 in January.

"The main area of concern is the extent to which companies' costs are rising", said Chris Williamson, chief business economist at the London-based company.

Combined with drops in manufacturing and construction PMIs this week, the survey was consistent with quarterly growth slowing to 0.5 percent in early 2017 from 0.6 percent at the end of a year ago, Markit said, in line with the Bank of England's relatively upbeat growth forecasts released on Thursday. The services report and similar surveys out earlier this week on manufacturing and construction still indicated a "buoyant start" to 2017 for the United Kingdom economy, he added.

But the Bank's 2017 forecast is now higher than those of most private sector economists.