UK service sector growth slows to cool recovery talk
By Peter Griffiths |
March 4, 2011, Friday
|
Print Edition
Print Edition
GROWTH in Britain's dominant service sector slowed sharply in February after January's weather-related bounce, a survey showed, suggesting the economic recovery may be too fragile for an early interest rate rise.
February's headline services PMI index fell to 52.6 from January's eight-month high of 54.5, a peak that followed a contractionary reading in December blamed on snow. The index, compiled by Markit/CIPS, had been expected to fall to 53.5.
The surprise 0.6 percent contraction in the fourth quarter of last year has made the central bank wary of raising rates, despite inflation running at double its target.
"This could be a game changer. It could push the first rate hike back some way," said Alan Clarke, economist at BNP Paribas.
"The services sector looks like it is growing, but only moderately and probably not enough to meet the Bank of England's expectations."
The weaker-than-expected services PMI survey contrasted with surprisingly strong data for manufacturing and construction earlier this week. Manufacturing growth held at a record high in February, while construction activity grew at its fastest pace in eight months.
The sector, which accounts for around three-quarters of the UK economy, faces headwinds this year from public spending cuts, tax rises and lower consumer confidence and spending.
Markit said its PMI surveys suggested the British economy grew by 0.5 percent in the first quarter, although that figure was inflated by the recovery from the snow-related disruption at the end of 2010. The underlying growth trend was closer to 0.2 percent.
Although the pace of growth in the service sector eased in February, it remained close to the average for the second half of 2010 and will reinforce expectations the economy will recover early this year, but only slowly.
February's headline services PMI index fell to 52.6 from January's eight-month high of 54.5, a peak that followed a contractionary reading in December blamed on snow. The index, compiled by Markit/CIPS, had been expected to fall to 53.5.
The surprise 0.6 percent contraction in the fourth quarter of last year has made the central bank wary of raising rates, despite inflation running at double its target.
"This could be a game changer. It could push the first rate hike back some way," said Alan Clarke, economist at BNP Paribas.
"The services sector looks like it is growing, but only moderately and probably not enough to meet the Bank of England's expectations."
The weaker-than-expected services PMI survey contrasted with surprisingly strong data for manufacturing and construction earlier this week. Manufacturing growth held at a record high in February, while construction activity grew at its fastest pace in eight months.
The sector, which accounts for around three-quarters of the UK economy, faces headwinds this year from public spending cuts, tax rises and lower consumer confidence and spending.
Markit said its PMI surveys suggested the British economy grew by 0.5 percent in the first quarter, although that figure was inflated by the recovery from the snow-related disruption at the end of 2010. The underlying growth trend was closer to 0.2 percent.
Although the pace of growth in the service sector eased in February, it remained close to the average for the second half of 2010 and will reinforce expectations the economy will recover early this year, but only slowly.
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