U.K. Service Sector Growth Eases Slightly In December

Although the British service sector expanded at a solid pace in December, underpinned by a sharp rise in new business, the pace of growth eased slightly from November as expectations fell to a near three-year low.

The Purchasing Managers' Index dropped slightly to 55.5 from 55.9 in November, survey data from Markit and the Chartered Institute of Procurement & Supply revealed Wednesday. The reading was forecast to drop to 55.6.

Nonetheless, the PMI remained above the long-run survey trend of 55.2. Also, the current period of rise in output was extended to three years, as the measure remained above the 50-neutral mark.

The headline figure averaged 55.4 in both third and fourth quarters, representing a weaker growth outcome in the second half of 2015.

"The surveys point to the economy having grown 0.5 percent in the fourth quarter, a solid but perhaps unexciting pace that means GDP would have risen 2.2 percent in 2015," Chris Williamson, chief economist at Markit, said.

Elsewhere, Capital Economics economist Vicky Redwood said there was clearly no reason for the central bank to raise interest rates soon with the recovery having lost some of its shine in 2015 and the further fall in oil prices having weakened the near-term outlook for inflation even more.

Data showed that the service sector growth was underpinned by a further strong increase in new business as firms reported successful marketing campaigns. On the other hand, the volume of outstanding business increased at the sharpest rate since August.

The current sequence of employment growth in the service sector was extended to three years in December, but the pace of job creation was the weakest since July.

Firms' expectations for activity over the forthcoming twelve months were the weakest since February 2013. Solid overall growth in activity is expected for 2016, but the strength of sentiment remained weaker than the long-run survey average.

Due to higher wages, average input prices registered the strongest growth in five months.

That said, input price inflation remained historically muted. At the same time, prices charged by service providers rose only marginally in December.