UK services sector grows at fastest rate since January

The UK services sector grew by more than expected in November, registering its biggest jump since the beginning of the year.

According to the Markit (NasdaqGS: MRKT - news) /CIPS purchasing managers' index (PMI) the services industry grew to 55.2, up from 54.5 in October.

The reading was highest than even the maximum expectation from economists.

PMI figures are a well-respected measure of the economy's overall health, with any score above 50 indicating growth in the sector while a fall below 50 would mean the industry was contracting.

The 55.2 reading marked the fastest pace of growth since January, and follows better-than-expected results from the construction industry last week.

Manufacturing, while also registering growth, missed its expectations and unexpectedly slowed in November thanks to the double-edged effect of the fall in sterling since June's Brexit vote.

The services industry PMI is particularly closely watched as it accounts for almost 80% of the UK's overall economy.

However the sector has seen a sharp squeeze on profits over the last three months, according to figures from the CBI.

Sluggish sales growth hit the bottom lines of companies in the sprawling sector, with 41% of businesses saying profitability was down.

But today's PMI reading marked the fourth consecutive month of growth in the sector, supported in part by new business creation.

Despite this, business sentiment is at its weakest level since July amid Brexit uncertainty, the low value of sterling and the unexpected result of the US presidential election.

"The further upturn in the vast services sector shows that the pace of UK economic growth remains resiliently robust in the fourth quarter, despite ongoing uncertainty caused by Brexit," said Chris Williamson, chief business economist at IHS Markit (Stuttgart: A1139A - news) , which compiles the survey.

"The three PMI surveys collectively indicate that the economy will grow by 0.5% in the fourth quarter."

But David Noble, chief executive of the Chartered Institute of Procurement and Supply, warned that inflation will mean higher costs for consumers in the coming months.

"The ongoing battle with currency fluctuations, a weak pound and the impact of inflation will continue to undermine company profits," he said.

"Rising prices are already being passed on to consumers and this is likely to accelerate in 2017 as the full import costs of higher fuel, food, travel and labour costs make their way down the supply chain.

"If consumers respond by slowing their spending, the sector will have to upscale their efforts to sustain the current momentum of growth.

"However, there were some winners. Weaker sterling enabled some businesses to not only raise their charges for export customers but also continue to acquire new business."