Brexit uncertainty undermines UK services sector
By Abigail Townsend
Date: Tuesday 05 Nov 2019
(Sharecast News) - The UK services sector stagnated in October, as companies awaited resolution over Britain's departure from the European Union.
The IHS Markit CIPS UK Services PMI Business Activity Index edged ahead to 50.0 from 49.5 in September. October's figure is still one of the decade's lowest, however, and marks no change; anything above 50.0 indicates growth, while a figure below signals contraction.
Business levels were supported by existing contracts as the volume of new work continued to decline. The outlook improved slightly, as firms expected Brexit to be resolved early next year, but overall, sentiment remained weak. International demand for UK-based services was also undermined by Brexit uncertainty.
Duncan Brock, group director at the Chartered Institute of Procurement and Supply, said: "The sector stuttered and stalled, delivering a lifeless set of results as new business from domestic and export markets dried up, and orders fell for the second month in a row.
"The sector's main difficulties are largely of Brexit's making, and with another deadline comes more indecision and delay. Businesses are putting off their investments for happier times, and consumers are saving their pennies in case rising costs have a more severe impact of the daily life."
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "The services PMI shows that the prime minister's new Brexit deal has received a lukewarm reception from firms. The survey was conducted between 11 and 29 October, so should have captured any recovery in confidence triggered by the new Brexit deal that the PM obtained on 17 October.
"Optimism about the 12-month outlook for demand recovered only to a three-month high, while firms continued to cut headcounts, albeit marginally."
The seasonally adjusted IHS Markit CIPS All-Sector Output Index - which collates the services, construction and manufacturing PMI indices - rose to 49.5 in October from 48.8 in September. Although that signalled a slower rate of contraction, the index has now been below 50.0 for three months, the longest negative sequence for more than a decade.
The overall volume of new business also fell at a similar pace to that seen in September.
Chris Williamson, chief business economist at IHS Markit, said: "The UK PMI surveys collectively indicated a further overall decline in private sector output in October. Contractions have been recorded in four of the past five months, marking the worst spell since 2009 during the global financial crisis.
"The October reading is historically consistent with GDP declining at a quarterly rate of 0.1%, similar to the pace of contraction in GDP signalled by the surveys in the third quarter. While official data may indicate more robust growth in the third quarter, the PMI warns that some of this could merely reflect a pay-back from a steeper decline than signalled by the surveys in the second quarter, and that the underlying business trend remains one of stagnation at best."
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