Investing.com – Activity in the U.K. service sector unexpectedly rose in December, hitting a 17-month high and bolstering optimism over the health of the British economy as the sector makes up approximately 80% of gross domestic product, industry data showed on Monday.
In a report, market research group Markit said the seasonally adjusted Markit/CIPS services purchasing managers’ index (PMI) unexpectedly rose to 56.2 last month from a reading of 55.2 in November.
Analysts had expected the index to fall to 54.7.
On the index, a level above 50.0 indicates expansion in the industry, below 50.0 indicates contraction.
Markit indicated that this was the third straight month of acceleration with new business increasing at the fastest rate since July 2015.
However, the research group further noted output price inflation hit a 68-month record.
“A buoyant service sector adds to signs that the UK economy continues to defy widely-held expectations of a Brexit-driven slowdown.,” Markit chief economist Chris Williamson said in the report.
Combined with the other robust PMI surveys from manufacturing and construction, Williamson said the data pointed to economic growth of 0.5% in the fourth quarter.
“At face value, this improvement suggests that the next move by the Bank of England is more likely to be a rate hike than a cut, but policymakers are clearly concerned about the extent to which Brexit related uncertainty could slow growth this year,” this expert said, concluding that the combination of the two factors made it unlikely that there would policy changes in the short-term.
Immediately following the report, GBP/USD was trading at 1.2304 from around 1.2288 ahead of the release of the data, EUR/GBP was at 0.8538 from 0.8552 earlier, while GBP/JPY traded at 143.53 compared to 143.23 previously.
Meanwhile, European stock markets were showing mixed trade, with London’s FTSE 100 inching up 0.01%. The Euro Stoxx 50 edged forward 0.18%, France's CAC 40 traded down 0.07%, while Germany's DAX slipped 0.05%.