LONDON (dpa-AFX) - Despite a strong run of positive data for the U.K. private sector recently, worries remain over the 'Brexit' negotiations and the squeeze on household spending power damping growth this year, ING Bank economist James Knightley said.
Latest data from IHS Markit showed Thursday that the service sector purchasing managers' index jumped more-than-expected in December, rising to 56.2 from 55.2. That exceeded economists' 54.7 consensus. Both manufacturing and construction PMIs had also risen at a faster-than-expected pace in December.
The services PMI score was the strongest figure since July 2015 and like other surveys, indicated that the UK economy has strong momentum heading into 2017.
The composite PMI, which combines all of the sector indexes, climbed to 56.7 from 55.3. IHS Markit said the reading has historically been consistent with GDP growth of 0.5 percent quarter-on-quarter.
'This is clearly a very positive story, but we do worry that sentiment surveys have weakened and the situation is likely to deteriorate further as household incomes are squeezed by rising inflation,' ING's Knightley said.
'Furthermore, with Article 50 set to be triggered in the next three months the Brexit process will soon start in earnest and the uncertainty that this generates may see businesses choose to sit on their hands rather than look to expand and invest and hire new workers.'
Hence, while the BoE is neutral on the outlook for monetary policy we still feel that further stimulus is more likely that interest rate hikes over the next 18 months, the economist added.
Copyright RTT News/dpa-AFX