UK services activity unexpectedly slows in February

Growth in the UK’s services sector eased last month, catching markets by surprise who expected an improvement of the country’s biggest sector.

The purchasing managers' index (PMI) for the services industry - a closely watched indicator of activity and sentiment - dropped to 56.7 in February from 57.2 in January, missing estimates by economists who were looking for an improvement to 57.5.

February’s weakness comes after the UK's services industry rebounded in January as activity unexpectedly fell to the lowest level since May 2013 in December.

The UK services sector is regarded as the country’s engine of growth given that it accounts for around 78% of gross domestic product.

Despite the drop-off in growth in February, the index remains well above the important 50 mark which separates expansion and contraction.

The index has been outperforming the manufacturing sector since the start of the UK economic recovery, however last month, the manufacturing sector surprisingly printed growth. The composite PMI for the UK – which combines the industrial and services - remained flat month on month at 56.7.

Chris Williamson, chief economist at Markit said that despite the fact that the underlying growth trend has moderated, the combination of relatively robust economic growth, the improving labour market and signs of price pressures picking up again in February suggests the Bank of England will come under increasing pressure to tighten policy later this year.

“The policy debate will focus on the medium-term inflation outlook, and an upturn in wage growth at the same time as lower oil prices fall out of the annual consumer price comparisons looks likely to induce a more hawkish stance among Monetary Policy Committee members, provided growth does not slow in coming months,” added Williamson,