U.K. Services Growth Cools as Costs Dominate Companies’ Concerns

• U.K. Services Growth Cools as Costs Dominate Companies’ Concerns

Britain’s services sector, the driving force of the economy in recent years, cooled in January and companies saw costs surge at the fastest pace in six years.

The weaker reading in IHS Markit’s monthly index was accompanied by softer growth in new business and slower hiring. It said its headline Purchasing Managers’ Index fell to 54.5 from 56.2 in December, which was a three-month low but still above the key 50 level that divides expansion from contraction. The pound fell after the data.

The report comes a day after the Bank of England raised its growth forecast for 2017, even as Governor Mark Carney warned that the country was only starting its Brexit journey and there were risks to the outlook. Against that backdrop, while some policy makers have begun to worry about accelerating inflation, Carney indicated the BOE won’t rush to tighten policy.

Faster consumer-price growth is being fueled in part by the weaker pound and higher energy costs. Echoing a separate report on manufacturing this week, Markit said services companies cited both those factors — as well as salaries and freight charges — for the increasing cost pressures they face.

“The main area of concern is the extent to which companies’ costs are rising,” said Chris Williamson, chief business economist at the London-based company.

He also said that an improvement in optimism among companies suggests the January slowdown could prove temporary.

Sterling fell against the dollar after the report and was at $1.2488 as of 9:36 a.m. London time, down 0.3 percent on the day.

Based on Markit’s combined surveys — covering manufacturing, services and construction — U.K. economic growth is running at a quarterly pace of about 0.5 percent, it said. That compares with 0.6 percent expansion in the fourth quarter of 2016.