Services sector slump fans fears of UK economic slowdown
Excerpt from: The Guardian – UK (05/05/2016)
PMI/Markit survey shows business activity at lowest level since February 2013 as EU referendum and global slowdown fears take hold
A sharp slowdown in Britain’s vast services sector, which covers everything from banking to hotels, has fanned fears the economy is grinding to a halt, hurt by a downturn in global trade and jitters ahead of June’s knife-edge EU referendum.
A closely watched survey of businesses in the UK’s biggest sector showed activity slumped in April to the slowest pace for more than three years. That followed polls earlier in the week showing the smaller construction and manufacturing sectors had also lost momentum last month.
The surveys’ compilers, Markit, said that taken together the reports suggested economic growth stalled in April, dropping to an estimated 0.1%, from 0.4% growth in the first quarter of the year. That chimes with a Bank of England warning that the economy will likely lose steam as the in-out EU referendum nears and businesses delay investment decisions.
Economists said the reports suggested the upcoming referendum was exacerbating an already fragile mood among businesses after a tumultuous start to 2016 on global markets.
“April’s Markit/CIPS report on services indicates that uncertainty emanating from the EU referendum has brought the recovery to its knees,” said Samuel Tombs, chief UK economist at the consultancy Pantheon Macroeconomics.
“With the latest opinion polls still showing that support for leaving the EU is just as strong as support for staying in, the headwinds stemming from the referendum will only intensify over the next two months.”
The headline activity index on the Markit/CIPS UK Services PMI poll dropped to 52.3 in April from 53.7 in March, the lowest reading since February 2013. That was still above the 50-mark that separates expansion from contraction, but below a expectations for 53.5 in a Reuters poll of economists taken before the report.
— Markit Economics (@MarkitEconomics) May 5, 2016
The report also signalled the lowest rise in employment since August for the services sector, which spans hotels to the financial industry, including banks and insurers. Business optimism also weakened, echoing other reports that employers are nervous about the referendum result and deferring both hiring and spending as a result.
Markit’s construction PMI this week pointed to the slowest growth for almost three years as firms blamed a lack of new orders amid a weaker outlook for the UK economy. There was similarly downbeat news from manufacturers, which also suffered their worst month in three years as falling export orders and a lack of domestic demand for consumer goods squeezed output.
Taken together the reports indicated the weakest rate of expansion for three years and were likely to put Bank of England policymakers on alert, said Markit’s chief economist, Chris Williamson.
“The latest reading is consistent with a near-stalling of economic growth, down to just 0.1% in April,” he said.
“The deterioration in April pushes the surveys into territory which has in the past seen the Bank of England start to worry about the need to revive growth, either by cutting interest rates or non-standard measures such as quantitative easing.”
Interest rates have been at a record low of 0.5% for more than seven years and financial markets are not expecting the Bank to raise them until well into next year. Most economists expect the Bank would cut interest rates in the event of a vote to leave the EU. But some say a so-called Brexit could also prompt a rate rise if it knocks the pound down sharply against other currencies.
Surveys suggest that the referendum itself is already impacting the UK economy, with consumer confidence measures down and business polls also noting worries. As such, Bank policymakers have made clear that they will treat pre-referendum news on the economy with more caution than usual.
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The Guardian – In The News
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