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Financial News: UK Service Sector Growth Weakens As Brexit Uncertainty

UK Service Sector Growth Weakens As Brexit Uncertainty Bites

09/04/2019 - 08:30:00 (RTTNews)

(RTTNews) - The UK service sector growth weakened in August as Brexit-related worries curbed spending, raising the likelihood of the economy entering a recession in the third quarter, data from IHS Markit revealed Wednesday.

The IHS Markit/Chartered Institute of Procurement & Supply Purchasing Managers' Index fell more-than-expected to 50.6 in August from 51.4 in July. The reading was forecast to drop to 51.0.

The index has remained above the 50.0 no-change value for five consecutive months, but the score was the lowest since June.

Chris Williamson, chief business economist at IHS Markit, said the lack of any meaningful growth in the service sector raises the likelihood that the UK economy is slipping into recession.

The PMI surveys are so far indicating a 0.1 percent contraction of GDP in the third quarter, the economist said.

The small drop back in the services PMI in August could indicate that the weakness in some parts of the economy is starting to feed through into the services sector, Thomas Pugh, an economist at Capital Economics, said.

Ultimately, what happens with Brexit over the next two months will be the main determinant of how third quarter and the fourth quarter turn out, Pugh added.

The upshot is that underlying growth is likely to remain fairly lacklustre over coming months, James Smith, an ING economist, said. Barring a 'no deal' exit in October, it is still too early to be penciling in UK rate cuts over coming months.

The latest survey also revealed slower increases in output and new work driven by sustained headwind from Brexit-related uncertainty and subdued corporate spending. New export work stalled as European clients delayed committing to new projects.

Backlogs of work eased for the eleventh successive month, which represents the longest period of decline since 2011/12. The latest increase in staffing was the slowest since the current sequence of expansion began in May.

Input price inflation accelerated to its strongest since January. However, due to intense competition for new work prices charged by service providers increased at the slowest pace for just over three years.

Business optimism declined for the third month in a row to its lowest since July 2016 as domestic political and economic uncertainty negatively affected business investment and client demand.

The composite output index fell to 49.7 in August from 50.3 in July. The score has been below 50 for the second time in the last three months. The fractional fall in private sector output reflected a sharp drop in construction work and another fall in manufacturing output.

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