UK GDP growth expectations for Q4 2018 have slid to 0.1% as the services sector enters a “a dark tunnel without a speck of light at the end”.
According to Q4 2018 data published by IHS Markit on Friday morning, services sector PMIs delivered their weakest quarter since Q3 2016, when the UK voted to leave the European Union. The figure of 51.3 was down from 53.9 in Q3 2018 and well below the long-term average since 1994 of 55.
Businesses remain under the Brexit cosh, said Duncan Brock, group director at the Chartered Institute of Procurement & Supply. “Indecision is squeezing the life out of activity, new orders, and consumer confidence and with the gloomiest expectations for the future since July 2016, the sector is moving through a dark tunnel without a speck of light at the end it seems.”
Chris Williamson, chief business economist at IHS Markit, said clarity on Brexit is needed to prevent the economy sliding into contraction. “Combined with disappointing growth in the manufacturing and construction sectors, the meagre service sector expansion recorded in December is indicative of the economy growing by just 0.1%.in the closing quarter of 2018,” Williamson said.
The figures threatened EY Item Club’s existing forecasts that growth would drop from 0.6% in Q3 2018 to 0.3% in Q4. “The fourth quarter PMI’s suggest there is a risk that the slowdown could have been even more pronounced,” it said in a press release. Its existing forecasts already pointed to the lowest annual growth since 2009 at 1.4%.
Howard Archer, chief economic adviser at EY Item Club, pointed out employment growth was at the weakest level since July 2016. “This could have been partly due to difficulties in filling staff vacancies because of a lack of suitably skilled candidates,” Archer said.
But Williamson attributed it to a more cautious approach to hiring. “Both manufacturing and services have seen previously solid hiring trends stall to near-stagnation.”
Moderating inflation and weakened oil prices have increased the Bank of England’s scope to adopt a cautionary approach on interest rates, Archer said. EY Item Club expects the central bank to take a “wait and see” approach to monetary policy until after the UK leaves the EU in March.
Brexit stockpiling buoys manufacturing
The services sector surveys follow construction and manufacturing surveys earlier in the weak.
“Overall, the purchasing managers surveys point to subdued economic activity in December after a weak November and October. Along with the disappointing services survey, the construction PMI showed activity at a three-month low,” said Archer.
“Admittedly, the manufacturing PMI showed activity rising to a six-month high in December but this was primarily due to near-record high stock-building within the sector and a pick-up in new orders as both domestic and foreign businesses looked to guarantee their own supplies amid increased concerns of potential Brexit disruptions.”
