U.K. Service Sector Growth At 6-Month Low; Bright Outlook For 2014

(RTTNews) - U.K.'s service sector growth unexpectedly eased in December to the lowest level in six months amid weaker increase in new orders, but the rate of expansion remained robust, suggesting that economic growth has likely accelerated in the fourth quarter.

Nevertheless, optimism among service providers regarding activity over the next 12 months climbed in December to the highest level in nearly four years.

Results of the latest purchasing managers' survey conducted by Markit Economics and the Chartered Institute of Purchasing and Supply (CIPS) showed that the activity indicator for the service sector dropped to 58.8 in December from 60 in November, marking the weakest improvement in operating conditions since June.

However, the December reading remained comfortably above the no-change 50-mark, indicating yet another strong growth in activity. Economists had forecast the index to rise to 60.5.

"Combined with still-strong growth in manufacturing and services, the PMI surveys suggest that the pace of economic growth will have accelerated in the fourth quarter from the 0.8 percent expansion seen in the third quarter," Markit Chief Economist Chris Williamson said.

"What's also very encouraging is that this is a broad-based upturn, even within services, which adds to the sustainability of the recovery."

The upturn in overall activity was supported by a further strong growth in incoming new business, albeit at the slowest pace in three months, amid improved confidence, increased marketing and the new product launches.

In order to handle the increased workload, firms raised their staffing levels at a record pace in December, extending the current period of job-creation to the twelfth month.

Input price inflation faced by British companies weakened in December, to the lowest level in three months. At the same time, output price inflation remained strong as companies sought to protect margins following the cost increases.

Looking ahead, the majority of the surveyed firms said they expect the positive trends in activity and new business will continue in 2014. The outlook component jumped to the highest level since March 2010. The average new business growth rate in the final quarter of the year was the best in the survey's history, suggesting a very bright outlook for 2014.

"The overall tone of the December purchasing managers' surveys reinforces our belief that GDP growth in 2014 will ease back a little from the very strong growth rates around 0.8 percent quarter-on-quarter in the second, third and (likely) fourth quarters of 2013," Howard Archer, Chief U.K. and European Economist at IHS Global Insight, said.

The outcome of the service sector survey was consistent with the recent manufacturing data, which showed that the activity indicator declined slightly to 57.3 from November's 33-month high of 58.1. New orders and output increased at rates which were among the highest in the 22-year history of the survey.

The British economy grew at a steady quarter-on-quarter rate of 0.8 percent in the three months to September. Compared to the third quarter of 2012, the GDP rose by 1.9 percent.