UK Services Growth Weakest In 2-1/2 Years As Orders, Employment Fall

UK service sector growth slowed more-than-expected in January, moving closer to stagnation, as new orders and staffing levels declined amid rising cost pressures and the heightened political uncertainty linked to Brexit.

The CIPS Services Purchasing Managers’ Index, or PMI, dropped to 50.1 from 51.2 in December, preliminary data from IHS Markit showed on Tuesday. Economists had forecast a score of 51.

A PMI reading above 50 signals growth in the sector.

The latest reading was the lowest for two-and-a-half years and the second-weakest since December 2012, IHS Markit said.

The UK is set to leave the European Union on March 29.

Brexit-related concerns dampened client demand that made firms delay decisions on new projects. Transport & communication and financial intermediation were the weakest performing areas of service sector activity in January.

The composite PMI, which combines manufacturing, services and construction, fell to 50.3 in January from 51.5 in December. Economists had forecast a score of 51.5.

The reading was the weakest since August 2016 and the second-lowest since December 2012.

“The latest PMI survey results indicate that the UK economy is at risk of stalling or worse as escalating Brexit uncertainty coincides with a wider slower slowdown in the global economy,” Chris Williamson, chief business economist at IHS Markit, said.

Service sector saw the first fall in new orders since July 2016 that caused activity to nearly stagnate in January. Staffing levels decreased for the first time since December 2012 amid concerns about the uncertain economic outlook due to Brexit. Backlogs declined for a fourth straight month.

Input cost inflation was driven up to a three-month high in January, mainly by higher salary payments and exchange rate depreciation. Meanwhile, average prices charged by service providers rose at the slowest pace since September, mainly due to intense competition for new work.

Optimism in the service sector towards the year ahead outlook for business activity rebounded slightly from December’s 29-month low, yet was still one of the lowest readings seen since early 2009.

Survey data from IHS Markit released earlier showed that the UK construction growth was the weakest in 10 months and the manufacturing expanded at the slowest pace in three months.

Elsewhere on Tuesday, figures from the Society of Motor Manufacturers and Traders, or SMMT, showed that UK car registrations declined for a fifth straight month in January, as increased demand from private buyers failed to offset the fall in business and fleet registrations.

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