UK slips closer to recession as service sector slows

UK slips closer to recession as service sector slows

Concern over a no-deal Brexit hits growth and damages business confidence

Britain’s dominant service sector failed to grow as quickly as expected in August, as the economy took a step closer to suffering its first recession since the financial crisis.

According to a survey from IHS Markit and the Chartered Institute of Procurement and Supply (Cips), which is monitored by the government and the Bank of England for early warning signs from the economy, meagre growth in the service sector failed to offset sharp declines in manufacturing output and construction activity last month.

Chris Williamson, the chief business economist at IHS Markit, said: “The lack of any meaningful growth in the service sector raises the likelihood that the UK economy is slipping into recession.”

Growth in the sector that includes restaurants, hotels and finance, which accounts for about 80% of the economy, dropped close to stalling point in August amid the mounting risks to the economy from a disruptive no-deal Brexit.

The reading on the IHS Markit/Cips services purchasing managers index sank to 50.6 in August, from 51.4 a month earlier – below the forecasts of City economists polled by Reuters. Anything above 50.0 separates economic growth from contraction.

Taken with sharp declines in construction work and factory output falling the most in seven years last month, the all-sector output index dropped from 50.3 in July to 49.7 in August.

IHS Markit and Cips said the UK economy was therefore on track to contract by 0.1% in the three months to September, as the growing likelihood of a no-deal Brexit serves as a handbrake on growth and damages business confidence across the country.

The warning comes after the economy shrank in the three months to June, marking the first quarterly decline since 2012. Economists view two consecutive quarters of falling output as a technical recession.

According to the latest snapshot from the service sector, confidence among companies dropped to the lowest level since July 2016, reflecting concerns about the impact of domestic political uncertainty.

The survey found that some European clients had delayed committing to new projects with UK service providers in response to the Brexit chaos clouding the future relationship between London and Brussels.

In a sign that the recent strength of the British labour market could be running out of steam, UK firms reported that jobs growth ground to a halt last month as fears mount over the gloomy economic outlook.

James Smith, an economist at the City bank ING, said: “A lot will hinge on the events on Wednesday in Westminster but the bottom line is that risk of a no-deal Brexit on 31 October is unlikely to fade completely after this week. This will continue to keep the pressure on underlying growth.”

Some economists said the chance of a second consecutive drop in GDP in the third quarter remained remote.

Car plant shutdowns and the running down of stock built up before the original 29 March Brexit deadline had fuelled the drop in output by 0.2% in the second quarter. However, analysts said that car manufacturers were likely to have maintained their production levels over the summer following the shutdowns.

Consumers have continued to spend despite the mounting political chaos in recent months. Retail sales volumes rose 0.5% in the three months to July compared with the preceding three-month period. Government spending is also increasing, helping the broader economy.

Should Britain fail to recover from the downturn in the second quarter, a recession would not be confirmed until after Britain has potentially left the EU. The Office for National Statistics is scheduled to publish official figures for the third quarter in the first few weeks of November.

Analysts said the economy remained close to its worst period since 2009. Chris Williamson said: “Even if a no-deal Brexit is avoided, the uncertainty relating to the UK’s trading position with the EU will spill into 2020, dampening demand, exports and investment.” es un sitio web oficial del Gobierno Argentino