LONDON: Growth in Britain’s services sector slowed more than expected last month as snow-related disruptions and a rise in sales tax took their toll, a survey of purchasing managers showed on Wednesday.
The pound fell on the data, but gilts were little changed as most investors stuck with their view that the Bank of England would halt its massive government bond-buying program on Thursday.
The more than two-point fall in the CIPS/Markit services PMI index — to 54.5 from 56.8 — contrasted with a sharp rise in the equivalent index for the manufacturing sector. Analysts had forecast a broadly steady reading of 56.5. “It is surprising that manufacturing managed to shrug off the snowy weather while the services sector took such a hit,” said Alan Clarke, UK economist at BNP Paribas.
“However, the report does suggest that the snow was to blame which means the setback could be temporary.” All but two of 62 economists polled by Reuters last week expect the BoE to pause the program at the end of a two-day meeting on Thursday. However, surprisingly weak fourth-quarter GDP data and a contraction in money supply have injected a scintilla of doubt.
Many firms cited January’s snowy weather for the slowing in new business. The hotels and restaurants sector was particularly hard hit as roads became impassable and Britain endured its harshest cold snap in 30 years. “The heavy snow appears to have hit services harder than manufacturing in January,” said Paul Smith, senior economist at Markit.
“Whereas manufacturers were often able to make up for lost production days, service providers — especially consumer-facing firms — simply saw fewer customers.” Input costs accelerated for a fourth consecutive month in January, driven up by higher fuel costs and a rise in value-added tax.
The government returned sales tax to 17.5 percent rate from 15 percent at the start of the year, following a year-long cut designed to boost demand during the recession.
But firms remained upbeat about the outlook, with business confidence at its strongest since September and employers cutting staff at the slowest pace in 21 months.
Meanwhile, consumer confidence rose in January in the United Kingdom although households’ inclination to spend fell somewhat, a bank survey said Wednesday, while a separate report showed the recovery in the services sector stalled, in part due to unusually heavy snowfall.
Both reports underlined the difficulty of Britain’s recovery from recession following a feeble return to growth in the fourth quarter. The Nationwide Building Society said its confidence index was up three points to 73, nearly double the level a year ago, when Britain was sliding deeper into recession.
January’s figure reversed a decline in confidence in December.
The index measuring confidence in spending fell from 108 in December to 96 in January.
As a measure of the depth of British gloom, the bank’s finding that 69 percent of respondents thought the economy was in bad shape represented an improvement over recent months.
Britain’s recession officially ended in the fourth quarter when the economy grew by just 0.1 percent.