December 5, 2017 / 12:28 PM / 12 days ago

UPDATE 1-UK economy lags further behind resurgent euro zone

    * UK service sector slowed growth in November -PMI
    * Rising price pressures for companies -PMI
    * Stretched consumers paying more for food -BRC
    * Car sales fall for eighth month -SMMT

 (Adds economists, car sales figures)
    By William Schomberg
    LONDON, Dec 5 (Reuters) - Britain's economy is ending 2017
lagging the euro zone's strong recovery as the effects of last
year's Brexit vote weigh on shoppers and on businesses,
according to a range of data released on Tuesday.
    The dominant services sector lost some momentum in November
while prices charged by companies rose at their fastest pace in
nearly 10 years, potentially adding to the country's inflation
problem, a closely watched survey showed.
    Another report showed shoppers spent more of their budgets
on the rising cost of food, while car sales fell for the eighth
month in a row in November.                          
    Britain's economy withstood the initial shock of the Brexit
vote in 2016 but has slowed sharply this year as the pound's
plunge following the referendum pushed up inflation and hit
households at a time when wages are growing only sluggishly. 
    Companies have meanwhile slowed investment as they wait to
see what leaving the European Union means for them, potentially
adding to Britain's weak productivity growth -- another drag on
the economy. 
    Prime Minister Theresa May failed to clinch a deal on Monday
to open talks on post-Brexit free trade with the European Union
after a tentative deal with Dublin to keep EU rules in Northern
Ireland angered her political allies in Belfast.             
    The monthly IHS Markit/CIPS services Purchasing Managers'
Index (PMI), covering businesses from hotels to hairdressers,
fell to 53.8 in November from to 55.6 in October, at the low end
of most forecasts from economists polled by Reuters.
    Taken along with a pickup for the smaller manufacturing and
construction sectors, November's PMIs suggested the economy was
likely to see robust quarterly growth of about 0.45 percent in
late 2017, IHS Markit said -- faster than earlier in the year. 
    But businesses were downbeat about the prospects for the
economy and the composite PMI of British services plus
manufacturing fell to 54.9, a long way short of the euro zone's
57.5, its highest since April 2011.           
    "The euro zone is going great guns at the moment and it will
almost certainly outpace the UK this year and next," Investec
economist Philip Shaw said.
    Chris Williamson, an economist with IHS Markit, said the big
news in the services survey was the jump in prices charged by
companies. They hit their highest level since February 2008, and
the second-highest since the survey began in 1996.
    That is likely to be a worrying sign for the Bank of England
which has said inflation has probably already peaked and has
signalled only a gradual rise in interest rates after it raised
borrowing costs for the first time in a decade last month.
    "Rising oil prices were again to blame in November, with
firms also reporting the need to pass higher costs of a wide
variety of other inputs on to customers as a result of the weak
pound having driven up import prices," Williamson said.
    "As such, the survey data suggest that inflationary
pressures have yet to peak."

    
 (Graphics by Andy Bruce; Writing by William Schomberg; Editing
by Catherine Evans)
  

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