UK econ­omy hits the rocks as Brexit bites

... and stum­bling Ger­many and France drag down the eu­ro­zone

Daily Mail - - City & Finance - by James Bur­ton

Bri­tain faces an eco­nomic down­turn after the dom­i­nant ser­vices sec­tor slammed into re­verse.

In a sign that po­lit­i­cal tur­moil over Brexit is spilling into the real world, a re­port by the re­search firm IHS Markit sug­gested the econ­omy is al­ready shrink­ing.

the group has also warned of a sharp slow­down in the eu­ro­zone as fac­tory output slumps in Ger­many and French busi­ness fal­ters. the bleak as­sess­ment came as Chris­tine La­garde ( pic­tured), head of the in­ter­na­tional Mone­tary Fund, said 70pc of coun­tries face a slow­down this year.

Speak­ing ahead of next week’s an­nual meet­ings of the IMF in Washington, La­garde warned high debt and low in­ter­est rates meant many economies ‘have left lim­ited room to act when the next down­turn comes’.

She added: ‘a year ago, i said, “the sun is shining, fix the roof.”

‘ Six months ago, i pointed to clouds of risk on the hori­zon. to­day, the weather is in­creas­ingly un­set­tled.’

Markit found that output by UK ser­vices firms con­tracted last month for the first time in two-anda-half years.

the firm’s in­dex of ac­tiv­ity in the sec­tor, which in­cludes ev­ery­thing from hair­dressers to in­vest­ment banks, fell from 51.3 in Fe­bru­ary to 48.9 in March. Scores be­low 50 show con­trac­tion.

the fig­ures were seen as a ma­jor warn­ing sign be­cause ser­vices make up 80pc of the Bri­tish econ­omy. they sug­gest the econ­omy shrank in March and may have been stag­nant in the first quar­ter of 2019. Sep­a­rate statis­tics this week showed that UK man­u­fac­tur­ers are still grow­ing, but this may only be be­cause they are scram­bling to build up stock­piles to guard against trade dis­rup­tion linked to Brexit. Chris Wil­liamson, of Markit, said that the bleak fig­ures sug­gest economists’ fore­casts for 1.3pc growth this year are far too op­ti­mistic. Even Markit’s own fore­cast of only 0.8pc growth could be too pos­i­tive if dead­lock over Brexit con­tin­ues, Wil­liamson said. He added: ‘Both the ser­vices and con­struc­tion sec­tors are now in de­cline, and man­u­fac­tur­ing is only ex­pand­ing be­cause of emer­gency stockpilin­g ahead of Brexit.

‘ the un­der­ly­ing pic­ture of de­mand is even worse than the head­line num­bers sug­gest.

‘a stalling of the econ­omy in the first quar­ter will there­fore likely turn into a down­turn in the se­cond quar­ter un­less de­mand re­vives sud­denly which, given the re­cent es­ca­la­tion of Brexit un­cer­tainty, seems highly im­prob­a­ble.’

Firms which re­sponded to the Markit sur­vey said their cor­po­rate clients have put off spend­ing de­ci­sions un­til there is more clar­ity on Brexit.

as well as Brexit, the UK econ­omy has been buf­feted by prob­lems in the eu­ro­zone.

italy en­tered re­ces­sion last year and the cru­cial Ger­man man­u­fac­tur­ing sec­tor is shrink­ing at its fastest rate since July 2012, dur­ing the sin­gle cur­rency bloc’s debt cri­sis. the Markit sur­veys are not al­ways an ac­cu­rate way of pre­dict­ing the future, par­tic­u­larly in un­cer­tain times, when the bosses who re­spond may over­state the prob­lems they face.

For ex­am­ple, the sur­veys pointed to a se­vere re­ces­sion im­me­di­ately after the Brexit vote, when in re­al­ity the econ­omy con­tin­ued to grow at a ro­bust pace.

James Smith, an econ­o­mist at the in­vest­ment bank­ing, said: ‘the sur­vey makes it clear that the econ­omy is be­ing hit hard by all the un­cer­tainty sur­round­ing Brexit.

‘Of course, it’s im­por­tant to re­mem­ber that the sur­veys don’t al­ways pre­cisely re­flect the ex­tent of a slow­down, merely that an in­creas­ing num­ber of firms are re­port­ing wors­en­ing con­di­tions.

‘that said, this lat­est read­ing im­plies that the first quar­ter as a whole could see near-stag­nant growth.’

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