05 December 2018

Financial Times: UK service industry barometer hits lowest level since Brexit vote

Political turmoil over the outcome of the Brexit negotiation helped push activity in the UK’s service sector in November to its lowest level since the immediate aftermath of the Brexit referendum, according to a key survey of executives working in the industry.

The IHS Markit services purchasing managers’ index fell to 50.4 from 52.2 in October. This was the lowest reading since July 2016 and below City economists’ expectations of an increase to 52.5.

Respondents to the survey said that Brexit uncertainty had led to their clients delaying investment decisions alongside “subdued business and consumer spending”.

Wednesday’s services PMI follows similar surveys for the manufacturing and construction sector published earlier this week. While that data pointed to a slight acceleration in growth, this was outweighed by the slowdown in the services sector and suggests the UK economy is losing momentum.

“A sharp deterioration in service sector growth leaves the economy flatlining in November as Brexit concerns intensified,” said Chris Williamson, chief business economist at IHS Markit, which compiles the survey.

November was the third consecutive month of slowdowns in the sector, which accounts for 80 per cent of the UK economy, although the services PMI does not include retail or public sector services.

The composite PMI, which includes all three surveys, fell to 51.0 in November from 52.2 in October, also the slowest rate since July 2016.

“The surveys are so far consistent with 0.1 per cent [national income] growth in the fourth quarter, thanks to the expansion seen back in October, but growth momentum has since been lost and risks are clearly tilted to the downside,” Mr Williamson said.

However falls in the PMI surveys, which do not directly measure output, can reflect a drop in business sentiment rather than actual activity: the deterioration in the PMIs following the Brexit vote was not matched by a drop in growth according to the official output figures.

Optimism about the year ahead among executives in the services sector also fell to its lowest level since July 2016, according to the survey. “Anecdotal evidence mainly attributed lower confidence to Brexit-related uncertainty,” Markit wrote in its report on the figures. [...]

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