Danny McCance 7 Nov 2018 10:00am

UK services sector activity at seven-month low

In October, business activity growth in the UK services sector slumped to its second-lowest level since directly after the Brexit vote in July 2016

It was only in March when snow caused disruption across the UK that levels were lower, according to the latest Purchasing Managers’ Index (PMI) survey from IHS Markit and the Chartered Institute of Procurement & Supply.

Despite this, the services sector is still on course to provide “the main impetus to economic growth in the fourth quarter”, however this stands to be muted with the growth rate expected to be at 0.2% – half of the rate seen in the third quarter – if the levels stay the same.

The “all-sector” PMI output index fell to 52.2 in October from 53.9 in September.

The slowdown in activity was mirrored by the slowing of new business across sectors, as new work in services increased “only very modestly” compared to September.

Expectations for the future also waned – except for July 2016, optimism was at the lowest point in six years.

The ICAEW Business Confidence Monitor yesterday found confidence to be at its lowest level in nearly a decade, with 42% of companies feeling less optimistic about the next 12 months.

The deterioration in business confidence and decrease in new orders have been blamed on Brexit uncertainty, which was also said to be limiting spending and investment.

“While the survey no doubt brings further evidence that Brexit worries are increasingly undermining business activity, the survey responses also highlight how the economy is facing other tailwinds,” said Chris Williamson, chief business economist at IHS Markit and author of the survey.

Williamson pointed to trade wars and other geopolitical risks, as well as the global economic downturn as factors in the slowdown.

Last month, the International Monetary Fund (IMF) downgraded its global growth rate to 3.7% from last April’s projection of 3.9% – it also downgraded the UK’s forecast from 1.7% to 1.4% for 2018.

In August, according to BDO’s services output index, the UK services sector – which accounts for about 80% of the UK’s economic value – shrunk for the first time since February 2010.