UK services growth wanes unexpectedly

London - Growth across British services companies slowed sharply in December and was its weakest since mid-2013, according to a survey that underscored how the country's economic recovery lost more pace at the end of last year.

The Markit/CIPS UK Services Purchasing Managers' Index (PMI) suffered its biggest decline in more than three years in December, falling to 55.8 from 58.6 in November to touch its lowest level since May 2013.

The slowdown was sharper than all the forecasts by economists in a Reuters poll that had predicted a little-changed reading of 58.5. Still, the index remained comfortably above the 50 mark that signals growth.

Survey compiler Markit said the PMI signalled Britain's economy grew by 0.5% in the last three months of 2014, slowing from 0.7% in the third quarter.

"The loss of momentum towards the year end will no doubt fuel worries that the upturn is too fragile to withstand higher interest rates," said Chris Williamson, Markit's chief economist.

Only two of the Bank of England's nine rate setters have voted to raise rates from their record low 0.5% since last August. Economists and financial markets have pushed back expectations for a first rate hike deep into this year.

Four months ahead of a national election, the latest batch of business surveys may also perturb finance minister George Osborne's Conservative Party.

Hopes that Britain's economic recovery will become less reliant on big-spending consumers ebbed further last Friday when data showed growth in the manufacturing sector weakened at the end of last year and lending to individuals soared.

While this might be a cause for concern in the longer term, for now the PMIs signalled a decent rate of economic growth.

"It's too early to get worried about a sharp slowdown - after all, the latest PMI reading is still strong, merely down from unusually high levels earlier in the year," said Williamson.

New orders at services companies rose at the slowest rate since April 2013 while firms hired staff at the weakest pace in months, Tuesday's survey showed.

However, Williamson said there were signs of increased wage growth, which been one of the biggest disappointments of the economic recovery so far and something the Bank of England has put at the centre of its thinking on when to raise rates.

The composite PMI, which combines surveys of the services, manufacturing and construction industries, also declined to its lowest level since May 2013 at 55.4, down from 57.8.