UK business activity hits worst level since July 2016
By Michele Maatouk
Date: Friday 22 Nov 2019
(Sharecast News) - Business activity in the UK fell to its lowest level in November since after the referendum in July 2016 as Brexit uncertainty and the upcoming general election took their toll, according to data released on Friday.
The IHS Markit/CIPS flash services business activity index fell to a 40-month low of 48.6 from 50.0 in October, missing expectations for an unchanged reading and below the 50.0 level that separates contraction from expansion.
Meanwhile, the manufacturing purchasing managers' index printed at a two-month low of 48.3, down from 49.6 in October and below expectations of 49.0.
The composite output index - which measures activity in both sectors - was 48.5 in November versus 50.0 the month before, also marking a 40-month low.
Chris Williamson, chief business economic at IHS Markit, said: "With an upcoming general election adding to Brexit-related uncertainty about the outlook, it's no surprise to see UK businesses reporting falling output and orders in November. The decline signalled by the flash PMI follows stagnation in October and adds to what has been the survey's worst spell since the recession of 2008-9.
"The weak survey data puts the economy on course for a 0.2% drop in GDP in the fourth quarter, and also pushes the PMI further into territory that would normally be associated with the Bank of England adding more stimulus to the economy."
Sterling fell on the news and by 0945 GMT, the currency was trading down 0.3% against the dollar at 1.2875 and 0.2% lower versus the euro at 1.1649.
Thomas Pugh, UK economist at Capital Economics, said: "The first set of regular flash PMIs for the UK will only stoke fears that the economy is heading for a further slowdown at the end of the year.
"The PMIs suggest there is a downside risk to our forecast that GDP growth will only slow to +0.2% q/q following a +0.3% q/q expansion in Q3. While the survey doesn't cover the retail or government sectors, which appear to be holding up much better, the big picture is that there is little momentum in the economy."
RBC Capital Markets said there are a couple of reasons to think the PMIs may be overstating the extent of the slowdown in the UK.
"For one, their predictive power has been blunted by the distortions caused to the timing of economic activity in the UK. The PMIs have been consistently overly pessimistic on UK growth for some time now. In addition, as we saw in the immediate aftermath of the 2016 EU referendum, the survey has a tendency to overstate the impact of political uncertainty, one of the factors cited in the deteriorating outlook for the services sector in particular. That is not to say that the UK economy hasn't slowed, it has, but not to the extent the PMIs have been pointing to. Smoothing out the Brexit-related distortions, we continue to see underlying UK quarterly growth running at 0.2% at present."
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