Brexit fears see job creation fall to 29-month low
Brexit uncertainty weighed on the UK’s services sector at the end of 2018 as it marked the close of the year with some of its weakest growth in recent times, while job creation fell to a 29-month low.
The services sector posted a 51.2 score for December in the closely-followed IHS Markit/CIPS services purchasing managers’ index (PMI), released today, only slightly up from November’s 28-month low of 50.4.
Brexit-related concerns were a key factor, according to the index, as business-to-business spending was subdued as well as lower appetite among consumers hurting companies.
Tight labour market conditions were to blame for difficulties hiring skilled staff, the index found, while higher wages were also a factor.
Salaries, higher food prices and larger costs on imported goods all pushed up operating expenses for businesses.
Chris Williamson, chief business economist at IHS Markit, warned that the figures show the UK economy is close to stalling.
“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,” he said.
“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.”
He added that the current low level of PMI – anything above 50 is considered growth – would normally have compelled the Bank of England to slash interest rates, but the Bank believes temporary Brexit uncertainty is to blame.
The figures show that services did not receive the Brexit boost that manufacturing enjoyed towards the end of last year, when stockpiling of raw materials pushed the sector to a six-month high.
Williamson predicted that GDP would grow just 0.1 per cent in the fourth quarter as a result of the latest data.
Howard Archer, chief economic advisor the EY Item Club, added that the fourth quarter PMI figures could mean overall GDP growth could hit 1.4 per cent for 2018, the weakest since 2009.
“The muted set of December PMI’s reinforce our belief that the Bank of England will remain firmly in ‘wait and see’ mode on monetary policy until after the UK leaves the EU in March 2019 – given the major uncertainties that are occurring in the run-up to the UK’s departure,” Archer added.
“Moderating inflation amid weakened oil prices gives the Bank of England increased scope to adopt a cautionary approach on interest rates.”
The pound rose against the dollar from 1.262 to 1.267 following the news.