UK’s dominant service sector suffers ‘one of worst performances’ of past decade

Sector close to stagnation in June, pummelled by Brexit uncertainty and sluggish UK economy, PMI survey shows 

Olesya Dmitracova
Economics and Business Editor
Wednesday 03 July 2019 10:41
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Britain’s vast services sector narrowly avoided stagnation in June, with a closely-watched gauge of output falling to the lowest level in three months.

The services PMI, an index based on a survey of purchasing managers, dropped to 50.2, only just above the 50 level indicating no change from the previous month. Economists had expected it to come in at 51, the same reading as in May. The PMI is produced by information company IHS Markit and the Chartered Institute of Procurement & Supply.

In what has now become a familiar refrain, purchasing managers often blamed Brexit uncertainty and the sluggish UK economy for the slow activity. New business declined slightly, continuing a trend in recent months. Likewise, backlogs of work continued falling.

“The near-stagnation of the services sector in June is one of the worst performances seen over the past decade and comes on the heels of steep declines in both manufacturing and construction,” said IHS Markit economist Chris Williamson, referring to PMI surveys of the other two sectors earlier in the week.

Although service firms remained optimistic about their prospects, their confidence ebbed from a high in May. The overall outlook masked a wide range of views: some providers thought demand will bounce back once there is clarity about Brexit, but many still expected headwinds from the global economy and political uncertainty at home.

On Tuesday, Bank of England governor Mark Carney warned that Donald Trump’s battle with China over tariffs could “shipwreck” the global economy.

One upbeat finding from the service sector survey was a further rise in employment despite the drop in output, but the resulting decline in productivity was the largest in the poll’s 20-year history.

Andrew Wishart, economist at Capital Economics, drew a gloomy conclusion from the trio of PMIs that complete the picture of the second quarter.

“A contraction across the economy as a whole won’t be avoided [in the quarter]," he said. "The fact the surveys have not picked up towards the end of the quarter and global manufacturing is slowing means the risk is that the economy fails to bounce back in Q3.”

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