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Services growth slows to seven-month low as firms fear for outlook - PMI

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Services growth slows to seven-month low as firms fear for outlook - PMI
FILE PHOTO - Giovanni Baccaro, the Head Waiter, adds finishing touches to a table setting before the first lunch sitting at The Ritz restaurant in London during its 100th anniversary year, April 17, 2006. REUTERS/Catherine Benson   -   Copyright  Catherine Benson(Reuters)
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By David Milliken

LONDON (Reuters) – Business activity in Britain’s dominant services sector slowed to a seven-month low last month and firms’ expectations for the coming year are the gloomiest since just after the 2016 Brexit vote, a major survey showed on Monday.

The IHS Markit/CIPS purchasing managers’ index (PMI) dropped to 52.2 in October from 53.9 in September, its lowest since a patch of unusually icy weather in March and a bigger fall than economists had forecast in a Reuters poll.

Britain’s economy has slowed since the June 2016 referendum, and Monday’s data added to signs that a patch of solid consumer-led growth over the summer months is now fading as firms focus on risks from Brexit and warning signs about the global economy.

“With autumn upon us, consumers are tightening their belts. And with the prospect of any greater certainty seemingly as distant as ever, businesses … are struggling to maintain their confident outlook,” said Chris Sood-Nicholls, a managing director at Lloyds Bank’s commercial lending unit.

Businesses’ expectations for stronger activity over the next 12 months were the weakest since July 2016, when they briefly hit a post-financial crisis low following the vote to leave the European Union.

Sterling briefly dipped to a day’s low against the U.S. dollar after the data, but market reaction was muted overall.

Prime Minister Theresa May has yet to agree a withdrawal deal with the EU to ensure goods, services and workers will continue to be able to cross borders easily after Britain leaves the bloc on March 29 next year.


Businesses also reported headwinds from a slowing global economy, trade tensions, and financial market turbulence.

“It therefore remains unclear as to the extent to which Brexit worries are exacerbating or obfuscating a more broad-based slowing of the economy,” IHS Markit economist Chris Williamson said.

Last week the Bank of England forecast Britain’s rate of economic growth would halve to 0.3 percent in the final three months of 2018 from an estimated 0.6 percent in the third quarter of the year, when good weather lifted consumer spending.

But Governor Mark Carney said the central bank would look beyond what it expects to be short-term growth volatility, and might need to raise interest rates faster than markets expect if Brexit ends up going relatively smoothly.

The weak services data follows the softest manufacturing PMI since the Brexit vote.

The two PMIs, combined with more robust construction data, are jointly the weakest since March and point to quarterly growth of 0.2 percent if things do not improve, IHS Markit said.

Businesses said new orders were coming in at the slowest rate since July 2016, and their costs were rising at the fastest rate since June due to higher fuel bills and rising wages.

However, they expected orders to pick up if the Brexit talks were concluded successfully.

The services PMI in Britain does not include the public sector or retailers, who enjoyed strong consumer spending over the summer but face longer-term challenges from online sales.

Consumer-facing firms such as hotels, restaurants and leisure companies reported the weakest PMI performance.

(Reporting by David Milliken; Editing by Gareth Jones)

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