Shock slide in UK services PMI points to stalling economy
Uncertainty about the terms of Brexit next March clobbered British services firms last month, leaving the economy at risk of contracting, a survey showed on Wednesday.
The IHS Markit/CIPS UK Services Purchasing Managers’ Index (PMI) fell to 50.4 from 52.2 in October, the weakest reading since just after the 2016 Brexit vote and below all forecasts in a Reuters poll of economists.
Watched closely by the Bank of England, the PMI suggested Britain’s economy is on track for quarterly growth of just 0.1 percent in the final three months of 2018, IHS Markit said, a sharp slowdown from 0.6 percent in the third quarter.
Slowing consumer spending and Brexit uncertainty hobbled services firms in November.
Prime Minister Theresa May’s Brexit plan has been agreed with the EU but faces deep opposition in parliament ahead of a Dec. 11 vote, raising the risk of a no deal Brexit shock to the economy in less than four months’ time.
Optimism among services companies, which account for the bulk of Britain’s economic output, fell to its second-lowest level since the depths of the financial crisis, the PMI showed.
Overall the figures chimed with other surveys showing sliding confidence among both consumers and businesses. New car sales fell 6.9 percent in the first 11 months of the year due to stalling consumer confidence, industry data showed on Wednesday.
Samuel Tombs, an economist at consultancy Pantheon Macroeconomics, said the PMI provided “the clearest indication yet that Brexit uncertainty is draining momentum from the economy”.
The pound fell only modestly on release of the PMI, with traders mostly focused on the progress of Brexit.
Still, BoE officials will note a recent deterioration in business and consumer confidence that suggests uncertainty over Brexit is aggravating the slowdown in the economy since the 2016 referendum.
Due to a slowdown in new business – which grew at one of the weakest rates since the financial crisis – companies relied on working through backlogs of work at the fastest pace since 2009 in order to eke out growth.
“As such, unless demand revives, a slide into economic decline at the turn of the year is a distinct possibility,” Chris Williamson, chief economist at IHS Markit, said.
The services PMI fell below the 50 mark in July 2016, just after the Brexit vote, spurring the BoE to cut interest rates to a new record low.
However, BoE Governor Mark Carney and other officials at the central bank have warned investors not to count on a cut to borrowing costs if Britain’s economy suffers the potentially inflationary shock of leaving the EU without a transition deal.
Slightly faster growth in employment an easing of cost pressures represented the only plus points.
Businesses will be watching a series of votes in parliament next Tuesday which, if lost by Prime Minister May, could cast her Brexit plans into further disarray.
“Clarity in relation to Brexit arrangements is … urgently needed to help ensure the current stalling of growth does not translate into a downturn,” Williamson said.
Source: Reuters (Graphic by Andy Bruce; Editing by Angus MacSwan)