UK set for solid 3Q even as services growth ebbs

By BLOOMBERG

LONDON • Growth in the UK’s dominant service sector was strong enough to keep the economy on track for a “robust” expansion in the third quarter (3Q).

IHS Markit said its Purchasing Managers Index for the industry slipped to 53.9 in September, down from 54.3 in the previous month and just below economists’ forecasts for a reading of 54. Job creation climbed to a seven-month high, though opt imi sm remained subdued in the face of political uncertainty.

Taken with previous surveys for the manufacturing and construction sectors, the performance was enough to leave the UK on course for growth of just under 0.4% in the 3Q, Markit said.

That’s the same pace as the three months through June and around the level that Bank of England (BoE) policymakers estimate is the economy’s potential. The report also showed a sharp in input costs, which may help back up the arguments of BoE officials who say that limited and gradual interest rate increases are needed to control inflation.

Still, Brexit remains a question mark, with the survey showing that business confidence was below average.

While some companies said there would be a boost to activity from pent-up demand once negotiations have been concluded, Brexit and trade tensions are, for now, the main constraints on growth.

“Brexit worries continue to dominate the outlook,” said Chris Williamson, chief business economist at IHS Markit.

That’s “keeping business optimism firmly anchored at levels which would normally be indicative of an imminent slowdown”.