Investing.com – Activity in the UK service sector dropped more than expected in November, dampening optimism over the British economy as the sector makes up approximately 80% of gross domestic product, industry data showed on Tuesday.
In a report, market research group IHS Markit said the seasonally adjusted IHS Markit/CIPS services purchasing managers’ index (PMI) decreased to 53.8 last month from a reading of 55.6 in October.
Analysts had expected the index to slip to just 55.0.
On the index, a level above 50.0 indicates expansion in the industry, below 50.0 indicates contraction.
The research group indicated that reading showed growth in November from the previous month’s six-month high and further noted that prices charged rose at the fastest pace since February 2008.
“Volumes of new work also increased at a slower pace, while the rate of staff hiring was the joint-slowest since March,” the report noted.
“Slower service sector growth comes as a disappointment after the improved performances of both manufacturing and construction in November,” IHS Markit chief economist Chris Williamson said.
“However, despite the weaker service sector expansion, the latest survey data indicate that the economy is on course to enjoy robust growth in the fourth quarter,” he added.
Williamson specified that the three combined surveys suggesting quarterly growth of about 0.45% for the final three months of 2017.
“The big news is in relation to prices, with the PMI surveys pointing to the largest monthly increase in average prices charged for goods and services since August 2008; a time when oil prices soared just before the global financial crisis,” this expert highlighted.
Williamson said that the blame in November was once again on rising oil prices but also noted that firms reported the need to pass higher costs of a wide variety of inputs on to customers due to the increase in importation costs as a result of a weaker pound.
“As such, the survey data suggest that inflationary pressures have yet to peak,” Williamson concluded.
Following the report, GBP/USD was trading at 1.3411 from around 1.3410 ahead of the release of the data, EUR/GBP was at 0.8842 from 0.8835 earlier, while GBP/JPY traded at 150.91 compared to 150.88 previously.
Meanwhile, European stock markets traded mixed, with London’s FTSE 100 gaining 0.28%. The Euro Stoxx 50 inched up 0.01%, France's CAC 40 lost 0.11%, while Germany's DAX slipped 0.02%.