Economy grew '0.5%' in final quarter to defy Brexit gloom - PMI

A respected survey tapping firms for information on their output and future intentions suggests the economy ended 2016 strongly, despite worries over rising costs.

The authors of the Markit (NasdaqGS: MRKT - news) /CIPS purchasing managers index (PMI) predicted GDP growth of 0.5% was achieved during the final quarter after its final survey for December pointed to a "buoyant" services sector.

The PMI (Other OTC: PMIR - news) reading for services, which accounts for more than 75% of UK output, hit a 17-month high of 56.2.

A figure above 50 indicates expansion.

Markit's all-sector PMI, which also takes in readings from manufacturers and construction firms, rose to its highest level for 17 months after all three reports easily beat the expectations of economists.

Its chief business economist, Chris Williamson, said: "A buoyant service sector adds to signs that the UK economy continues to defy widely held expectations of a Brexit-driven slowdown."

Surveys indicating shock and uncertainty immediately after the referendum result are likely to have been a factor behind the Bank of England's decision to introduce further stimulus to the economy in August.

Whether its intervention then was necessary - and governor Mark Carney's suggestion during the campaign that a recession was possible if Leave won - have since proved lively topics of debate, given the economy's subsequent performance.

But economists believe UK growth will slow from 2% in 2016 to around 1.1% this year, with demand dented by rising inflation that is already at a two-year high.

Retail is particularly exposed while the motor industry body has told Sky News the cost of new vehicles is set to rise .

It is all attributed to sterling's weakness since the EU vote, as buying goods and services from abroad in pounds is more expensive.

Markit said that while firms across its December surveys pointed to the strongest growth in new orders since March 2015, many were also facing the fastest rise in costs for five years.

The findings echo those of a separate survey of businesses by the British Chambers of Commerce.

Its director general, Dr Adam Marshall, said: "Both manufacturing and services firms say they are under pressure,
particularly from the rising cost of inputs, which is squeezing margins and may weaken future investment.

"Overall, our findings suggest (economic) growth will continue in 2017, albeit at a more modest pace."