Sterling hit as economy grapples rising costs

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The pound has fallen below $1.25 after a trusted survey of service sector firms recorded its first slowdown in output growth for four months.

The Markit/CIPS purchasing managers’ index (PMI) for January reported the biggest leap in input costs for more than five years was affecting activity, though business expectations remained strong despite the price pressures.

The service sector accounts for more than 75% of UK gross domestic product (GDP) and has been the cog at the heart of the UK’s recovery since the financial crisis.

he PMI study followed earlier readings of activity in the manufacturing and construction sectors, which also identified continuing cost headwinds.

They highlight the extent to which businesses are under pressure to pass on rising prices – explained by the fall in sterling’s value since the Brexit vote.

A weaker pound makes it more expensive to buy goods and services from abroad. Sterling has plunged by up to 20% versus the dollar alone since June.

The effects are already being felt at the supermarket checkout and even the petrol pump because oil is priced in dollars.

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