Brexit uncertainty causes shock slump to UK service sector

‘Unless demand revives, a slide into economic decline at the turn of the year is a distinct possibility,’ said Chris Williamson, of IHS Markit

Ben Chu
Economics Editor
Wednesday 05 December 2018 12:27 GMT
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Activity in the UK services sector, the dominant part of the economy, in November slumped to its lowest level since the wake of the 2016 EU referendum, with firms blaming Brexit uncertainty.

The Purchasing Managers’ Index (PMI) fell to 50.4 in the month, down from 52.2 in October and well below the expectations of City of London analysts.

The reading was above the 50 mark that separates growth from contraction, but Chris Williamson of IHS Markit – which compiles the survey – said that was only because firms were working through back orders.

“Unless demand revives, a slide into economic decline at the turn of the year is a distinct possibility,” he said.

“Clarity in relation to Brexit arrangements is, therefore, urgently needed to help ensure the current stalling of growth does not translate into a downturn.”

IHS Markit reported some firms said heightened Brexit uncertainty had led to delays with their clients’ business investment decisions.

Lowest since Brexit referendum

Combined with the latest readings from manufacturing and construction surveys, the services PMI suggests the rate of the UK’s GDP growth is slipping to just 0.1 per cent in the final quarter of 2018.

“Unless there is a particularly strong bounce back in December, GDP growth of 1.3 per cent seems likely over 2018 as a whole, the weakest since the financial crisis,” said Ruth Gregory, of Capital Economics.

The sectors covered by the services PMI include transport, information, communication, finance, insurance, real estate and business services but exclude retail.

Services account for 80 per cent of the UK economy.

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The most recent official data show the sector’s growth slowing to 0.4 per cent in the quarter to September, down from 0.7 per cent in July.

In a further piece of bad economic news, the Society of Motor Manufacturers and Traders reported on Wednesday that new private vehicle registrations were down 6.4 per cent in November compared with the same month in 2017, a rate worse than the trend seen so far this year.

“Consumers are holding back from big-ticket purchases while the economic outlook remains so uncertain,” said Samuel Tombs, of private equity investor Pantheon.

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