The UK economy is on course for a solid finish to the year after activity in the services sector picked up and consumer spending continued to rise last month. But there were fresh signs of concern about inflation as the weak pound raises the cost of fuel and other imports.
A closely watched survey of firms in Britain’s dominant services sector, which spans banking to hotels, showed they enjoyed the fastest growth since January as they continued to recover from a short, sharp downturn following the Brexit vote. The Markit/CIPS UK services PMI [pdf] report chimed with other indicators suggesting businesses and consumers have shrugged off the referendum result for now.
The survey’s compilers, Markit, said the economy was on course to grow 0.5% in the final three months of the year based on the service sector report and its polls of the smaller construction and manufacturing sectors last week. That would match the pace of GDP growth in the third quarter and defy economists’ post-referendum warnings of a sharp slowdown this year.
Separate figures from Barclaycard released on Tuesday showed consumer spending grew 5.1% in November, the second highest year-on-year increase since it started publishing data five years ago. That followed record growth of 5.5% in October.
The increase reflected an ongoing trend for people to spend money on meals out and cinema trips as well as the fact they had to pay more for essentials in November. Fuel prices were a big part of that, with spending on petrol up 11.7% on a year ago as a litre of unleaded petrol cost 116p, compared with 108p at this point in 2015.
The figures chime with warnings from economists and the Bank of England that higher inflation and lacklustre pay growth will squeeze living standards next year and could hit an economy that has so far proved resilient to the Brexit vote.
Commenting on the Barclaycard figures, its managing director, Paul Lockstone, said there had been a noticeable rise in the amount households were spending on necessities.