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Services growth across UK hits seven-month low amid Brexit uncertainty

Services growth across UK hits seven-month low amid Brexit uncertainty

Sales in sectors like hospitality, transport and finance weakened, as new automobile sectors also fell in October

The risk from a disorderly Brexit and increasing signs of weakness in the global economy are collectively combining to drag several UK business sectors close to stalling point during the final months of the year.

The latest surveys of business activity for October revealed a marked slowdown in the fourth quarter of 2018, suggesting that the period of relatively robust economic growth over the hot summer months has begun to cool.

The UK’s services sector, the largest contributor to economic growth– which includes hotels, restaurants, transport and finance, expanded at its slowest pace since March according to the latest snapshot report published on Monday from IHS Markit and the Chartered Institute of Procurement and Supply (Cips). It stated clearly that Brexit-related uncertainty and concerns regarding the global economic outlook had constrained growth. All the while, it also recorded the weakest upturn in services firms taking on new work since straight after the EU referendum in 2016.

The monthly IHS Markit/Cips purchasing managers’ index, which is closely watched by the Bank of England and the Treasury, dropped to 52.2 last month from 53.9 in September. This was it at its weakest for seven months on a scale where a reading above 50 signals economic growth.

Economists have forecasted that GDP growth will slow to 0.2% in the final quarter of the year from about 0.6% in the third quarter, which makes it disappointing news for Prime Minister Theresa May as she attempts to negotiate a withdrawal agreement from the EU.

While consumer-facing sectors such as hotels, restaurants and leisure had recorded robust activity in the summer months—they reported their weakest performance in October.

Duncan Brock, group director at Cips, stated: “Many of the respondents attributed this poor performance and the biggest softening in new order growth since July 2016 to continuing ambiguity around the Brexit negotiations.”

Sales in new cars also suffered another disappointing month in October, as the number of vehicle registrations dropped for the seventh consecutive month, falling by 2.9% Yoy to stand at 153,599 units.

Fuelled by a 21% drop in diesel registrations, the figures come after car sales plunged by one-fifth in September, which is usually a bumper month for the motor trade. A waning appetite for diesel cars amid changes to government policy, as well as weak consumer confidence, were stated to weigh heavily on demand.

The slowdown in the services industry last month followed disappointing news from the manufacturing sector, which accounts for about one-tenth of GDP. Factories across the country recorded a sharp slowdown in output in October, as new orders declined for the first time since mid-2016.

Chris Sood-Nicholls, the head of global services at Lloyds Bank, stated: “With autumn upon us, consumers are tightening their belts. And with the prospect of any greater certainty seemingly as distant as ever, businesses across the disparate services sector are struggling to maintain their confident outlook.”

Despite the slowdown however, the UK economy is still proving to be more resilient than many economists had predicted ahead of the EU referendum.

Data from the British Retail Consortium (BRC) and the accountancy firm KPMG found that growth in high street sales picked up to an annual rate of 1.3% in October, against an increase of 0.2% in the same month a year ago.

Data from Barclaycard–which accounts for nearly half of the UK’s credit and debit card sales, found that ticket sales rose by 22.1% compared with the same month a year ago, influenced by the sale of Glastonbury tickets for 2019, after the music festival was not held in 2018.

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