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Activity in the UK’s dominant service sector moderated at the start of the year but should still help support a decent rate of economic growth in the first quarter, according to a key business survey.

January’s survey of purchasing managers in the service sector fell back to 54.5 from December’s 56.2, according to IHS Markit – its weakest level since October but still comfortably in expansionary territory (any number above 50 marks growth).

Markit said service sector firms – which account for nearly 80 per cent of UK GDP – reported robust levels of optimism as the government prepares to start its EU exit talks, but overall output growth fell to a three-month low.

Cost price inflation also continued to climb on the back of a falling exchange rate, with Markit noting that producer price inflation is beginning to feed into consumer prices. The Bank of England expects inflation to hit 2 per this month.

The slight drop off in the services PMI follows similarly softer readings for the manufacturing and construction sector which remained in growth territory at the start of the year.

They all point to a relatively “buoyant start to 2017 for the UK economy” said Chris Williamson at Markit, who thinks the economy is on course to expand 0.5 per cent in the first quarter from 0.6 per cent at the end of the year.

Surveys of UK firms have bounced back strongly following an initially sharp plunge in the wake of the leave vote last summer.

James Knightley, senior economist at ING, noted that despite tailing off last month, the PMI remains well above its six and 12-month average.

Yesterday, the Bank of England delivered a hefty upgrade to the UK’s 2017 GDP forecast, lifting its projections from 1.4 per cent 2 per cent.

Sterling slipped on the release, falling 0.26 per cent against the dollar on the day to $1.2489.

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