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Confidence among service sector slips to three-year low

By Ben Woods

Published 04/02/2016

Forecasts for firms are gloomy
Forecasts for firms are gloomy

Confidence among firms in Britain's powerhouse services sector has reached its lowest point for three years amid fears of further turmoil in the markets, according to a report.

The closely-watched CIPS/Markit purchasing managers' index (PMI) said the 12-month outlook for the services sector had plummeted, as firms feared a "hard landing" in China and the possibility of Britain leaving the European Union.

And PwC chief economist Esmond Birnie said it was unlikely that Northern Ireland firms in the sector - which encompasses everything from estate agents to restaurants - would be feeling any better.

"It's hard to see how it could be better here, as employment is already growing more slowly than Great Britain. In addition, Northern Ireland is likely to be impacted by deferred austerity.

"While in Great Britain, big reductions have already been made in the public sector, they are only now being made in Northern Ireland. That has a demand side-effect on services."

The gloomy CIPS/Markit forecast came as the services sector activity remained robust in January, with a reading of 55.6 compared to 55.5 in December - which was stronger than the long-run survey average.

A reading above 50 signals growth. The expansion was boosted by further rises in new business, which grew for the 37th consecutive month in January, while the rate of expansion rose to a six-month high.

But the volume of outstanding business contracted during the month for only the second time in nearly three years, the report stated. It added that the rate of job creation remained strong, picking up from December's five-month low, in January.

The update on the services sector, which accounts for three-quarters of the UK economy, followed figures this week on the construction sector - which slowed in January to its weakest level for nine months.

Meanwhile, UK factories enjoyed a better start to the year than expected as domestic demand boosted manufacturing output. Chris Williamson, chief economist at Markit, said: "Worries about a Chinese 'hard landing', financial market jitters, higher interest rates in the US, more austerity at home and the possibility of 'Brexit' and EU tensions have collectively pushed the business mood in the dominant service sector to its darkest for three years."

He added: "Despite the uptick in growth, the increased uncertainty about the outlook and persistent lack of inflationary pressures means the majority of policymakers will no doubt be more worried about avoiding another downturn than whether the economy needs higher interest rates."

The Bank of England will provide further detail on its analysis of the British economy today when it delivers its monthly inflation report and decides whether or not to enforce a rise in interest rates.

Howard Archer, chief economist at IHS Global Insight, said the dip in business confidence across the services sector reflected "concerns about the global economic situation".

Belfast Telegraph

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