Services sector 'remains under Brexit cosh'

Will Green is news editor of Supply Management
4 January 2019

Growth in UK services rose at one of the slowest rates seen in two-and-a-half years in December as subdued conditions persisted, according to the latest PMI.

The IHS Markit/CIPS UK Services Purchasing Managers’ Index increased to 51.2 in December, up on 50.4 in November and against the no-change reading of 50.

Survey respondents suggested Brexit-related concerns were a key factor weighing on business-to-business spending and subdued consumer demand had acted as a brake on sales.

Rising input costs were associated with higher wages, greater food prices and higher costs for imported items, though this was offset by lower fuel costs.

Chris Williamson, chief business economist at IHS Markit, said: “The service sector typically plays a major role in driving economic growth, but is now showing worrying signs of having lost steam amid intensifying Brexit anxiety.

“The final two months of 2018 saw the weakest back-to-back expansions of business activity since late-2012 and highlight how clarity on Brexit is needed urgently in order to prevent the economy sliding into contraction.”

He added: “Even the current slow growth of business activity is only being achieved by firms eating into back orders, suggesting that operating capacity could be reduced in coming months unless new order inflows pick up. Employment growth is already faltering as firms took a more cautious approach to hiring.”

Duncan Brock, group director at CIPS, said businesses “remained under the Brexit cosh”.

“The pressures of higher wage demands added to input costs, though there was some reprieve in the shape of lower fuel prices. This was not enough to prevent businesses passing costs on to clients at the fastest rate since June 2018 as the expense of the right staff and business overheads ate into precious margins,” he said.

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