UK economic growth fears after services sector wanes
Key PMI survey shows weakest growth since April Further interest rate hike looking less likely in 2019
Britain’s powerhouse services sector cooled last month, a closely monitored survey yesterday revealed, suggesting the Bank of England may have been hasty in hiking interest rates earlier this week.
The Markit/cips services purchasing managers’ index (PMI) showed a reading of 53.5 for July, down from 55.1 in June, as Brexit concerns, record high temperatures and the World Cup impacted businesses.
While the latest result is above the 50 level that separates growth from contraction, it missed economists’ expectations for a reading of 54.7 and marked the slowest expansion in business activity since April.
The data was described as a “disappointing start to the third quarter” for the UK services sector, with business activity and new work rising at weaker rates than a month earlier.
Britain’s services sector accounts for some three-quarters of the economy although the PMI does not factor in the vast retail industry.
While some respondents said the unusually warm summer boosted sales – particularly for those in the tourism industry – others said the hot weather and World Cup tournament were partly to blame for a drop-off in business.
Howard Archer, chief economic adviser to the EY Item Club think-tank, said: “The July services PMI reading of 53.5 was below the second quarter average of 54, which had been an improvement on the 53.1 achieved in the first quarter of 2018.
“There were some indications that services activity was hampered in July by the fine weather and the football World Cup weighing down on consumer footfall and possibly disrupting some business operations – nevertheless there was clearly an underlying slowdown in activity.
“Adding to the disappointment, new business growth slowed appreciably in July after reaching a 13-month high in June. There were reports of new business growth being held back by delayed decision making and greater risk aversion among companies in response to Brexit uncertainty.”
Economists at Barclays Research noted: “Less activity, lower employment and still high inflationary pressures mean there is indeed little good news in the July print.
“Taken at face value, the survey even suggests downside risks to our +0.4 per cent quarter-on-quarter forecast for Q3 GDP, and this comes just one day after the unanimous vote by the [monetary policy committee] to lift the base rate based on a confident forecast that growth will surpass 0.4 per cent quarter-onquarter in every quarter of the next few years.
“Accordingly, we remain sceptical that the bank will be in a position to hike once more by the end of 2019.”
sreid@scotsman.com