Brexit uncertainty holding back new business growth in UK services sector, study shows

Latest data shows slowdown following surprise uptick in services in June

Companies said clients were holding off on new projects due to a lack of clarity around Brexit (Reuters)

UK services PMI published on Friday showed a ‘disappointing’ start to the third quarter with companies stating that Brexit uncertainty is holding back new business growth, according to research by IHS Markit/CIPS.

The business activity index showed a reading of 53.5, down from 55.1, and below expectations of 54.7, while the sector saw the weakest rise in new jobs created since August 2016.

The index showed that both business activity and incoming new work rose at a slower rate than in June, while higher staff wages and rising fuel bills resulted in another strong increase in average cost burdens in July.

Tim Moore, associate director at IHS Markit, said that while it is difficult to quantify the precise impact of the recent heatwave on overall business performance, some survey respondents reported that a combination of hot weather and the World Cup had weighed on consumer footfall.

“These short-term disruptions and a general slowdown in new business growth appear to have offset the boost to tourism-related activity from the extended dry period in July,” he added.

“Tight labour market conditions and rising wage pressures are also a key challenge for service sector companies.”

Meanwhile, researchers said: “A number of survey respondents noted that delayed decision-making and greater risk aversion among clients in response to Brexit uncertainty had held back new business growth in July.”

Bank of England governor Mark Carney warned on Friday that the chances of a no deal Brexit were “uncomfortably high”, and said such an outcome was “highly undesirable”. His remarks followed the Bank’s decision to raise interest rates above 0.5 per cent for the first time since the financial crisis, and Mr Carney said a gradual raising of rates from 0.75 per cent to 1.5 per cent was on the cards over the next three years.

However, Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the latest services data, as well as Mr Carney’s predictions around Brexit, mean “the chances of the MPC raising bank rate again within the next six months are very remote”.