Growth in Britain's service sector held up surprisingly well in January, a survey shows today, but confidence fell to its lowest in more than six years suggesting the impact of the credit crunch is far from over.
There was also no let-up in inflation. The output price index rose for a sixth month in a row to notch the joint-third highest score on record and input price inflation held near a record high.
The Chartered Institute of Purchasing and Supply/NTC activity index rose to 52.5 in January from 52.4 in December and above the consensus forecast of 52. It was the second monthly rise in the index after a run of declines towards the end of last year.
Any reading above 50 indicates expansion. Britain's service sector, which accounts for around three quarters of the economy, has grown every month for nearly five years but the pace has slackened since hitting a peak in December 2006.
The service sector is faring much better in Britain than other European countries. Spain's service sector shrank in January at its sharpest rate since records began and Germany's contracted for the first time in more than four years. Italy's service sector also contracted while costs rose at a record pace and business optimism fell to its lowest since the series began.
Despite the modest pick up in services growth in Britain, businesses were pessimistic about the future with expectations falling to their lowest level since October 2001.
The survey compilers noted confidence was particularly weak in the financial intermediation sector, which recorded a fall in both sales and activity.
Subdued growth overall gave British businesses a chance to finish existing contracts. Backlogs of work fell for the fourth consecutive month and at the sharpest pace since April 2003.
Evidence that capacity constraints are easing may be welcomed by Bank of England policymakers, but other indicators suggest inflationary pressures are continuing to build.
The input price index came in at 63.8, only a shade below the series high of 63.9 hit in December, and the output price index rose to 55.3 from 54.5.
