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UK economy starts fourth quarter on weak note as Brexit hits orders

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By Reuters
UK economy starts fourth quarter on weak note as Brexit hits orders
FILE PHOTO: A lorry is driven past dozens of others parked after traveling by ferry between Britain and France at the Port of Dover, Britain, February 14, 2019. REUTERS/Toby Melville/File Photo   -   Copyright  Toby Melville(Reuters)

By David Milliken

LONDON (Reuters) – Britain’s economy got off to a weak start to the final quarter of 2019, according to surveys which showed the giant services sector stagnated last month, with concerns about Brexit depressing new orders, while consumers stayed cautious.

Britain had been due to leave the European Union on Oct. 31 which prompted limited stockpiling by businesses and households.

But Brexit has now been delayed until Jan. 31, with an election on Dec. 12 raising further uncertainty.

The IHS Markit services Purchasing Managers’ Index (PMI) edged up to 50.0 — which represents zero growth — from 49.5 in September, which was one of the lowest readings since Britain was last in recession in 2009.

The all-sector PMI, covering manufacturing and construction as well as services, remained below 50 for a third month in a row, the first time this has happened since 2009.

“The underlying business trend remains one of stagnation at best,” IHS Markit economist Chris Williamson said.

October’s PMI readings on their own were consistent with a 0.1% quarterly fall in overall economic output, Markit said.

Britain’s economy has lost momentum this year, hurt by a global downturn due to the U.S.-China trade war as well as increased Brexit uncertainty.

In the euro zone, the manufacturing PMI contracted even more sharply than in Britain, reflecting the bloc’s greater reliance on exports to China.

British consumer spending has been more resilient than business investment, but surveys on Tuesday showed a slowdown here too.

The British Retail Consortium said high street spending rose 0.6% in October, the most since April. But on a rolling basis sales have grown by an average of just 0.1% over the past 12 months, the lowest on record.

Barclaycard data showed spending growth slowed to 1.5% from 1.6% last month, and the Society of Motor Manufacturers and Traders reported a 7% annual fall in new car sales.

A brighter note came from a survey by HSBC which, in contrast to most others, showed businesses were cheerier about export prospects than a year ago.


Businesses have struggled to plan around deadlines for leaving the EU that have changed three times this year, leading to volatility in official figures that has not always been tracked by the PMI.

Official data showed the economy shrank by 0.2% in the three months to June as businesses dealt with an overhang of raw materials bought before the original March 29 Brexit deadline.

Most economists expect a limited rebound in the third quarter, meaning Britain would dodge a recession.

But the overall picture is muted, with Morgan Stanley — one of the gloomier forecasters — predicting growth of just 0.2% in the third quarter and stagnation in the fourth.

The Bank of England is due to update its growth forecasts on Thursday but economists polled by Reuters do not expect any change in interest rates ahead of December’s election.

The opposition Labour Party plans to renegotiate Brexit and put the revised deal to a referendum. It also promises a significantly more interventionist approach to the economy.

For now, businesses surveyed by IHS Markit say Brexit worries are reducing orders, which fell in October by their most in six months for services businesses. On the all-sector measure, orders fell at the third-fastest rate since 2009.

(Reporting by David Milliken; Editing by Catherine Evans)