Services sector hits a seven-month low amid uncertainty over Brexit
OUTPUT in Britain’s dominant services sector slumped to a seven-month low in October as Brexit uncertainty continues to drag on the economy.
The closely-watched Markit/ CIPS services purchasing managers’ index (PMI) showed a reading of 52.2 in October, down from 53.9 in September.
A reading above 50 indicates growth, but economists had been expecting a reading of 53.3.
It was the weakest rate of expansion since March, when the Beast from the East sent a chill over the sector, and the second lowest since July 2016.
Chris Williamson, chief business economist at IHS Markit, which compiles the survey, said: “The disappointing services sector numbers bring mounting evidence that Brexit worries are taking an increasing toll on the economy.
“Combined with the manufacturing and construction surveys, the October services PMI points to the economy growing at a quarterly rate of just 0.2%, setting the scene for GDP growth to weaken sharply in the fourth quarter.”
Consumer-facing sectors such as hotels, restaurants and leisure reported the weakest performance.
October’s data also pointed to another sharp increase in input prices, which was mainly linked to higher transport costs and rising staff wages, IHS said. Survey respondents also cited increasing prices for items sourced from abroad, which was linked to the weak pound.
The poor showing from services follows equally lacklustre figures from manufacturing and construction last week.
“However, while it is not surprising to see that Brexit uncertainties are increasingly undermining business activity at this stage of the negotiations, the survey responses also suggest that the economy is facing other headwinds, including a broader global slowdown, trade wars, heightened geopolitical uncertainty and tightening financial market conditions,” Mr Williamson added.
Sterling was down 0.4% versus the US dollar at 1.29 following the news. Versus the euro, the pound was down 0.25% at 1.14.
Meanwhile, the services purchasing managers’ index (PMI) for the Republic said growth in the services sector also eased to a seven month low during October, amid a slowdown in the rate of expansion in new orders and strong inflationary pressures.
It follows last week’s manufacturing data which showed that manufacturing output in the Republic also increased at the slowest pace in seven months in October.
The Republic’s PMI was posted at 57.2 in October, down from 58.7 in September. Any reading over 50 is deemed growth, therefore the data still signalled a substantial monthly increase in activity across the Irish service sector.
Volumes of new work from abroad continued to increase strongly, albeit at a slower pace than in September.
Panellists commented on increased orders from the UK and greater overseas orders.
Job creation in the sector picked up to a 10-month high, with anecdotal evidence from panellists indicating that an increased level of customer orders and investment encouraged them to hire additional staff.
Both input prices and output charges increased at quicker rates during October.
Firms reported passing on increased business costs such as insurance rates to customers.
Looking ahead, service providers were optimistic about activity over the coming year.
Expectations of increased customer orders as well as an improving Irish economy were stated as reasons behind optimism. Confidence was broadly in line with that seen in September, the report found.
The economy is facing other headwinds such as a broader global slowdown