- Chris Williamson, Markit's chief UK economist
Confidence among British services companies dropped to the lowest level in three years in December as the risk of Brexit impacted executives' mood. Markit's headline activity index declined to 55.5 last month from 55.9 in November, but remained above the long-run survey trend level of 55.2. The services sector accounts for roughly 80% of the UK economy. A strong measure of new business was offset by the weakest pace of job creation in the sector since July, while long-term expectations for business activity were the lowest since 2013.
In addition to that Markit lowered its fourth quarter GDP estimate to 0.5% from 0.6% a month ago. The biggest downside contributors to the UK economy growth in 2015 were manufacturers and exporters. A strong Sterling meant UK exports became less attractive on the global arena. Significant downside risks remain in the British economy in 2016, including government spending cuts, a potential increase in interest rates, as well as the cost impact of the living wage. The Bank of England is predicted to hike interest rates in the second quarter of 2016. However, given inflation remains stubbornly low and earnings growth has been sluggish, financial markets see the central bank raising rates around the end of the year as a realistic scenario.
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