'Reluctance to commit' hits services sector

Will Green is news editor of Supply Management
5 November 2018

Growth in UK services in October slowed to its weakest since March’s snow disruption, against a background of more cautious spending patterns among clients.

The IHS Markit/CIPS UK Services Purchasing Managers’ Index dropped to 52.2 in October, down on 53.9 in September and against the no-change reading of 50.

Duncan Brock, group director at CIPS, said: “A reluctance to commit was the message coming through loud and clear from service providers in October as the sector checked in with its worst performance since March and lowest optimism since July 2016.”

Higher fuel bills and salary payments contributed to the fastest rise in average cost burdens since June. Firms reported increasing prices for items sourced from abroad, linked to the weak sterling exchange rate. Higher operating expenses led to the fastest rise in prices charged by service providers since June.

The latest rise in new work was the weakest recorded since July 2016, with firms reporting Brexit-related uncertainty and concerns about the global economic outlook constraining demand for business services. Some survey respondents noted subdued consumer spending in October, with hotels, restaurants and leisure reporting the weakest performance.

Chris Williamson, chief business economist at IHS Markit, 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.

“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.

“It therefore remains unclear as to the extent to which Brexit worries are exacerbating or obfuscating a more broad-based slowing of the economy, which would have important implications for policymaking.”

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