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UK economy rebounds with unexpected services strength

London - Growth in Britain’s services sector unexpectedly strengthened in April, giving the economy a solid start to the second quarter after a weaker-than-forecast performance at the start of the year.

IHS Markit’s index rose to 55.8 in April from 55 in March, defying expectations for a decline to 54.5. Its measures for manufacturing and construction published earlier this week also improved, and the gauges suggest UK economic growth is running at a 0.6% pace.

Markit chief economist Chris Williamson said 0.4% should be possible for the quarter as a whole, which would compare with 0.3% in the January to March period.

The report also showed that new business grew at the fastest pace this year and employment rose, albeit modestly. Respondents to the survey who are optimistic about the outlook continued to far outnumber pessimists, though the level of confidence eased. Some firms cited “persistent Brexit-related uncertainty” and concerns that higher inflation will damp consumer spending.

“The strengthening of growth and the upturn in prices will bolster calls for higher interest rates” from the Bank of England, Williamson said. “But weak growth in the consumer sector remains a concern, and is something which could intensify.”

The extent of the building inflation pressures was apparent in the services survey, with costs rising sharply again in April, partly thanks to the weaker pound. Companies noted higher food and fuel prices, along with a new minimum wage.

To protect margins, they are passing on much of those cost increases to customers, with the prices charged index rising signaling the sharpest inflation since 2008.

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