UK services index plunges to lowest in almost 3 years
LONDON: A U.K. services gauge dropped in February as concerns about global growth, market volatility and the possibility of a British exit from the European Union rattled the biggest part of the economy.
The Purchasing Managers Index published by Markit Economics on Thursday fell to 52.7 -- the lowest since March 2013 -- from 55.6. Economists had forecast a reading of 55.1, and the weak result follows disappointing reports on manufacturing and construction that suggest economic growth could slow to 0.3 percent this quarter from 0.5 percent.
The surveys may alarm Bank of England policy makers, who have so far maintained that "Brexit" fears have not hit growth and that the U.K. is well-insulated from global turmoil. Nevertheless, Governor Mark Carney said last week that officials have scope to loosen monetary policy if needed, including cutting interest rates.
"The extent of the slowdown will be a shock to policy makers" and "puts to bed any talk of the Bank of England raising interest rates," said Markit economist Chris Williamson. "The focus will instead increasingly shift to whether policy makers may soon need to dig deeper into their toolbox."
The pound fell after the data and was trading at $1.4049 as of 9:40 a.m. in London, down 0.1 percent.
The survey "completes a triple-whammy of disappointing survey news for February" and there are still "downside risks" to the 0.3 percent estimate for the first quarter, according to Williamson.
Markit's manufacturing survey earlier this week showed factories had their worst month in almost three years last month and a gauge of construction fell to a 10-month low. With services now showing signs of weakening, Williamson said the economy's "main engine of growth is at risk of stalling."
Companies are "unsettled by concerns regarding the increased risk of 'Brexit,' financial market volatility and weak economic growth at home and abroad," he said.
After falling to a three-year low in January, business confidence edged up last month, but remains at a level that "historically presaged an imminent slowing in the economy to near stagnation or worse in coming months," Williamson said.