Key services sector grows, but optimism hit by Brexit

● Reading of 53.9 for September just shy of expectations ● Employment’s first rise recorded in seven months

Britain’s powerhouse services sector continued to grow in September, but Brexit concerns kept business optimism subdued, according to figures released yesterday.

The closely-watched Markit/ Cipsservicespurchasingmanagers’ index (PMI) showed a reading of 53.9 in September, down from 54.3 in August.

A figure above 50 indicates growth. Economists had been expecting a reading of 54.

Firms recorded slightly higher confidence last month, but political uncertainty around the outcome of Brexit negotiations weighed on growth projections.

Chris Williamson, chief business economist at IHS Markit, which compiles the survey, said Brexit worries are “keeping business optimism firmly anchored at levels that would normally be indicative of an imminent slowdown”.

But he added that the solid progress pointed to “robust growth” in the UK economy since weather disruption affected businesses earlier in the year.

The reading was higher than the average for 2018 so far, which stands at 53.6. Higher business activity during the period was attributed to a solid increase in new work and competitive pricing strategies.

September marked the fastest rise in employment numbers for seven months, as firms upped their headcounts to alleviate stretched capacity and pursue expansion plans.

Staff shortages at services companies have now led to five months of an increasing backlog, with levels of unfinished work steadily rising.

This was good news for employees, with the tight labour market often pushing up starting salaries.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The economy remains a long way from overheating and growth will likely slow further if Brexit talks aren’t amicably concluded soon, given that firms are reporting to Markit that political uncertainty is weighing on budget-setting and confidence.”

Howard Archer, chief economic adviser to the EY Item Club, said: “The slightly softer set of September PMIS reinforce our belief that interest rates will rise again until after the UK leaves the EU in March 2019 given the major uncertainties that are occurring in the run-up to the UK’S departure.”

PMI figures for the construction and manufacturing sectors were released earlier this week, with the former weaker than expected but the latter showing some improvement.

Meanwhile, US services firms expanded at a record pace last month in another sign the economy there is strengthening. The Institute for Supply Management said 17 services industry sectors covered showed growth last month with positive developments seen across areas including exports.