(ShareCast News) - UK economic sentiment is worsening while the Europe's economic upturn is gaining pace, a survey showed on Wednesday, but with inflation expectations on the continent rising slowly to indicate interest rates could remain low for a some time.
The European Commission's economic sentiment indicator for the UK fell to 108.8 in November, the lowest since May and down from 110.3 in the previous month.
For the eurozone, the ESI climbed to 114.6 from 114.1, which was in line with the consensus forecast and some economists said would be consistent with the bloc's annual gross domestic growth accelerating to as high as 4% from the 2.5% in the third quarter.
Euro area sentiment improved in most areas, with the industrial index hitting its highest ever level to indicate industrial production growth of about 5%, services sentiment suggested growth in the sector will pick up too, but retail confidence edged lower.
Inflation expectations in the eurozone remained subdued, with consumers' inflation expectations for the coming 12 months picking up to 16.0 from 14.7 in October. Selling-price forecasts among industrial firms in November jumped to 11.1 from 8.7 a month earlier.
For the UK, the ESI primarily fell due to a plunge in confidence in the services sector to its lowest level since May 2013, while confidence also weakened in the construction sector, but recovered in the retail sector and remained strong among manufacturers.
Notably, consumer confidence remained stable, returning to -5.2 after one month at -5.5, in contrast to the sharp fall found in last week's survey by the Centre for Economics and Business Research and YouGov.
This suggests that households haven't been fazed by the Bank of England's rate hike, said economist Sam Tombs at Pantheon Macroeconomics.
"Households, however, look set to be hit by a renewed burst of price rises," he noted, pointing to the rising net balances of retailers and services firms planning to raise prices over the next three months.
"Quarter-on-quarter growth in real household spending, therefore, likely will struggle to maintain Q3's 0.6% pace."
Europe-focused economist Jack Allen at Capital Economics said the survey suggested the euro area recovery might have picked up pace at the start of the fourth quarter.
With inflation expectations rising slowly, he said this "supports the ECB's cautious approach to normalising monetary policy. We think that it will end its asset purchases in December 2018, then wait until September 2019 before raising interest rates."