U.K Services Sector Beats Estimate in December

• U.K Services Sector Beats Estimate in December

The U.K.’s services sector unexpectedly beats analysts estimate in December, affirming the economy’s strength ahead of the March Brexit negotiation.

A measure of the biggest part of the economy rose to 56.2 from 55.2, according to IHS Markit’s Purchasing Managers Index. That’s well above the 54.7 forecast by economists and the 50-mark dividing expansion from contraction.

Together with reports on manufacturing and construction, the figures point to growth of 0.5 percent in the fourth quarter, close to the pace recorded in the previous three months. The composite PMI for all three sectors rose to the highest since July 2015.

While the latest surveys paint a picture of an economy showing continued resilience to the June vote to leave the European Union, there are risks on the horizon. Business sentiment among services companies remains below its long-run average, with respondents citing Brexit and upcoming European elections as sources of uncertainty.

Prices charged rose at the strongest rate since April 2011 due to the weakness of the pound alongside higher food and fuel costs, according to the survey.

Accelerating inflation poses a challenge for Bank of England policy makers, who still expect economic growth to cool this year after cutting their key interest rate to a record-low after the Brexit referendum. A suggestion they could lower rates again was dropped late last year amid a changing outlook.

“This improvement suggests that the next move by the Bank of England is more likely to be a rate hike than a cut,” said Chris Williamson, an economist at Markit in London. “But policymakers are clearly concerned about the extent to which Brexit-related uncertainty could slow growth.”

With just a few months until the U.K. begins formal exit negotiations, firms are still in the dark about what shape Brexit will take. The resignation of the U.K.’s envoy to the EU, Ivan Rogers, highlighted the lack of direction within the government and may lead to a more severe divorce from the bloc.

Williamson said the BOE will consider the “current resilience of the economy alongside the elevated levels of uncertainty.” It announces its next policy decision and publishes new forecasts on Feb. 2.