Brexit uncertainty hit UK services sector in October, figures show

The Purchasing Managers’ Index showed that companies’ expectations for stronger activity over the next 12 months in October were the weakest since July 2016

Ben Chu
Economics Editor
Monday 05 November 2018 10:47 GMT
Chancellor Philip Hammond says a no-deal Brexit would result in a new budget

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Confidence among UK services firms slumped to its lowest since the aftermath of the Brexit referendum in October, the latest survey snapshot of the sector showed.

The Purchasing Managers’ Index indicated that companies’ expectations for stronger activity over the next 12 months in October were the weakest since July 2016.

The overall activity index dropped to 52.2 in the month, the weakest since March, and below City of London analysts’ expectations of 53.3.

“The disappointing server sector numbers bring mounting evidence that Brexit worries are taking an increasing toll on the economy,” said Chris Williamson of IHS Markit, which compiles the PMI survey.

Along with the October construction and weak manufacturing PMIs, released last week, the latest services reading is consistent with overall quarterly rate of UK GDP growth slowing to just 0.2 per cent.

That would be down from a rate of 0.7 per cent in the three months to August.

Weakest since July 2016

Services account for around 80 per cent of UK GDP.

The PMI covers sectors such as transport, communication, business services, hotels and restaurants, but not retail.

“The services PMI’s shortfall in October ... adds to evidence that the economy is heading for a weak end to the year, due to slowing global growth and heightened risk of a no-deal Brexit,” said Samuel Tombs of Pantheon.

“Until the risk of a no-deal Brexit lifts – we still expect to wait until the end of Q1 [2019] – growth in economic activity looks set to remain lacklustre.”

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In last week’s Budget the chancellor, Philip Hammond, suggested that if the government successfully concluded a withdrawal agreement with the European Union in the coming weeks, the economy could get a boost.

The Office for Budget Responsibility’s current forecast is for GDP growth to come in at just 1.3 per cent in 2018 and the Bank of England warned last week that many firms are freezing investment due to concerns over the possibility of a no-deal Brexit.

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