Brexit anxiety saps momentum from service sector
The latest Markit/CIPS services purchasing managers’ index showed a reading of 50.4 in November, down from 52.2 in October.
Output in Britain’s dominant services sector slumped to its lowest level since the Brexit vote in November as the country’s EU divorce continues to drag on the economy.
The closely watched IHS Markit/CIPS UK services purchasing managers’ index (PMI) showed a reading of 50.4 last month.
This was lower than the 52.2 recorded in October and below the 52.2 reading economists were expecting. A figure above 50 indicates growth.
November saw the worst performance since July 2016, when business sagged following the result of the referendum on Britain’s membership of the European Union. Excluding July 2016, it was also the worst performance since February 2013.
The survey suggests that Brexit anxiety has weighed on business activity and sentiment with companies more risk averse when making spending and investment plans following reports that Britain could crash out of the EU with no deal.
Chris Williamson, chief business economist at IHS Markit, said: “A sharp deterioration in service sector growth leaves the economy flatlining in November as Brexit concerns intensified. Measured across services, manufacturing and construction, the survey results suggest that the pace of economic growth has stalled.
“The surveys are so far consistent with 0.1% GDP growth in the fourth quarter, thanks to the expansion seen back in October, but growth momentum has since been lost and risks are clearly tilted to the downside.”
He warned that unless demand revives, a “slide into economic decline at the turn of the year is a distinct possibility”.
“Both the slowdown in current business activity and the deterioration in business optimism were primarily caused by an intensification of anxieties over Brexit. Uncertainty in relation to the withdrawal agreement and the possibility of no deal was often reported to have caused companies and customers to cancel or postpone spending and investment decisions,” Mr Williamson said.
“Clarity in relation to Brexit arrangements is therefore urgently needed to help ensure the current stalling of growth does not translate into a downturn.”
Howard Archer, chief economic adviser at EY Item Club, said overall, the purchasing managers’ surveys published in November point to UK economic activity struggling markedly in the fourth quarter and suggests that the Bank of England will hold off from another interest rate hike until after the UK leaves the EU in March.