UK economy suffers sharp slowdown at start of 2018 - IHS Markit

By William Schomberg

REUTERS - Britain's economy slowed sharply in January, according to a survey which cast doubt on growing

expectations among investors that the Bank of England might be gearing up to raise interest rates again in the coming months.

The IHS Markit/CIPS Purchasing Managers' Index (PMI) for the country's dominant services sector slowed to a 16-month low of 53.0 from 54.2 in December.

The reading was at the bottom end of a range of forecasts in a Reuters poll of economists and looked likely to widen the gap between Britain's slow-growing economy as it heads for Brexit and other countries gaining from a bounce-back in global growth.

 

Combined with last week's weaker-than-expected surveys for the manufacturing and construction sectors, Monday's report suggested the world's sixth-biggest economy grew last month at its slowest pace since shortly after the Brexit vote in 2016.

Companies reported the non-renewal of finished contracts, unfavourable weather and the loss of existing clients as well as uncertainty about the outcome of the Brexit negotiations that

face Prime Minister Theresa May this year.

Although new work came in faster than in December, it was below the average for 2017.

"The January slowdown pushes the all-sector PMI into dovish territory as far as Bank of England monetary policy is concerned," Chris Williamson, chief business economist at HIS Markit, said.

"With the survey also indicating weaker upward price pressures, the data therefore cast doubts on any imminent rise in interest rates."

The BoE is due to announce new economic forecasts on Thursday and investors are watching for any signs that it ismoving towards a rate hike in the coming months, after it increased borrowing costs for the first time in a decade in November.

Britain's economy grew faster than expected at the end of 2017, and financial markets have put a 50-50 chance on a BoE rate hike in May.

But the PMI surveys for January suggested the economy was set to grow by a quarterly pace of just under 0.3 percent in the first three months of 2018, down sharply from the PMI's signals

of 0.4 to 0.5 percent in the fourth quarter.

Official data has shown Britain's economy grew by 0.5 percent from October to December, its fastest pace of 2017.

Monday's survey showed job creation picked up as services firms remain positive about the outlook. Business confidence was the highest since March 2017.

Inflation in the prices charged by firms eased to a four-month low but remained high. Input prices rose at their slowest pace since September 2016.

(Reporting by William Schomberg; Editing by Hugh Lawson)