UK services sector in ‘dark mood’, says survey

The Chancellor, George Osborne, warned last month that Britain faces a 'dangerous cocktail' of risks from the global economy

The slowdown of the Chinese economy has hit confidence (Getty)

Fears over a potential Brexit referendum result, a Chinese slowdown and recent financial market turbulence has put the UK’s dominant services sector in its “darkest mood” for three years, experts have warned.

Ebbing confidence also threatens to open up “cracks” in the resilience of the recovery according to the Chartered Institute of Procurement and Supply’s (Cips) latest activity index, compiled by the financial data firm Markit.

The survey covers the biggest sector of the UK economy, accounting for three-quarters of growth and ranging from transport, computing and professional services to hotels and restaurants, although it excludes retailers and spending on government services.

Its activity index, where a score over 50 signals growth, was virtually unmoved at 55.6 – continuing to show solid growth for now from a sector shouldering the recovery singlehanded following decline and stagnation among builders and manufacturers.

But sentiment over future prospects is at its lowest since early 2013, while softening new orders leave the economy facing a potentially tricky period, according to Markit’s chief economist Chris Williamson, who said “cracks continue to appear in the country’s resilience”.

“Worries about a Chinese ‘hard landing’, financial market jitters, higher interest rates in the US, more austerity at home and the possibility of Brexit and EU tensions have collectively pushed the business mood in the dominant service sector to its darkest for three years,” he added.

The Chancellor, George Osborne, warned last month that the country faces a “dangerous cocktail” of risks from the global economy, while economists also cite threats from the Brexit referendum and rising bills in April from the new national living wage.

The Cips snapshot is likely to give even more reason for caution on interest rate rises from the Bank of England’s Monetary Policy Committee, which publishes its latest decision on Thursday alongside its quarterly Inflation Report forecasts. Rates have been held at 0.5 per cent since March 2009.

Markit says its latest batch of surveys on manufacturing and construction and services are consistent with improved growth of 0.6 per cent in the latest quarter if continued in February and March.

But the Bank of England is poised to cut its growth and inflation forecasts in its latest Inflation Report, having predicted in November a 2.5 per cent advance for the economy this year. Its inflation forecasts will also be slashed following steeper than expected falls in the oil price to $33 (£22.90) a barrel. Pantheon’s chief economist Samuel Tombs said: “The UK’s economic recovery is a shadow of its former self.”

There was brighter news at least from small and medium sized manufacturers despite no growth in orders at home and a small fall in new export sales in the three months to January, according to the CBI’s SME trends survey. Firms are more optimistic over the next quarter.