UK services sector growth hits four-month low amid Brexit fears – The Guardian

UK services sector growth hits four-month low amid Brexit fears – The Guardian

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Slowing growth across Britain’s services companies in June completed a “triple whammy” of disappointing economic news this week that also saw growth in the construction and manufacturing industries fade in response to Brexit uncertainty and weak consumer confidence.

Activity in the services industry, which accounts for almost 80% of economic activity, fell to a four-month low in June, dragging down the all-sector IHS Markit/CIPS purchasing managers index (PMI) from 54.5 in May to 53.9 in June, the lowest since February.

Some analysts said the weak set of figures indicated a broad softening in activity across the economy that was likely to dent the enthusiasm of Bank of England policymakers who have proposed increasing interest rates.

Earlier this week, monetary policy committee members Michael Saunders and Ian McCafferty said persistent inflation and strong employment growth needed to be calmed by higher interest rates. Chief economist Andy Haldane recently indicated that he could vote for a rise later this year should the economy continue to expand.

Chris Williamson, Markit’s chief business economist, said: “A slowing in services sector growth completes a triple-whammy of disappointing PMI survey readings.

“Although the three PMI surveys are running at levels that are historically consistent with GDP growing by around 0.4% in the second quarter, it’s clear that the economy heads into the third quarter losing momentum.”

Williamson said the surveys of business optimism revealed a steep decline following the general election and commencement of Brexit negotiations.

“At the same time that households are battling against rising inflation, the indications are that the economy’s resilience is being tested,” he said.

“It would therefore be a surprise to see policymakers vote for a rate increase. According to historical comparisons, the current PMI reading would be more consistent with the Bank of England cutting interest rates rather than hiking.

The surveys show there are pockets of growth in financial services and business services, but the overall picture is one of business spending, investment and exports failing to provide sufficient impetus to fully offset the consumer slowdown.

Inflation has climbed to 2.9% while wages are only rising by little more than 2%, leaving millions of households to face falling living standards.

GDP growth is expected to recover in the second quarter to between 0.4% and 0.5% after stumbling in the first quarter to just 0.2%. However, the lack of momentum in output and deteriorating expectations of a business-friendly outcome from the Brexit negotiations means the UK economy could stagnate in the third quarter.

“Given the deterioration in the forward-looking indicators, such as business optimism and order book growth, the risks are tilted towards the economy slowing in the third quarter,” said Williamson.

Scott Bowman, UK economist at the consultancy Capital Economics, said the gloom cast by the PMI was overdone and the economy remained resilient.

“The three-month average of the all-sector PMI is still consistent with quarterly GDP growth of 0.5% or so in the second quarter. And while the PMI overestimated growth in the first three months of the year, it excludes the retail sector – which performed poorly in the first quarter but looks likely to have recorded a stronger performance in the second.

“What’s more, hard output data for March and April have set a fairly good base for growth in the second quarter. Accordingly, we still think that GDP growth will accelerate to close to 0.5% in the three months to June, from the first quarter’s 0.2% rate.”

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