GROWTH of the UK's services sector slowed sharply last month to its weakest since September 2016, as consumer-facing businesses such as hotels and restaurants came under pressure and Brexit uncertainty weighed, a survey reveals.
The report, from the Chartered Institute of Procurement & Supply, follows surveys last week from CIPS showing UK construction sector expansion ground to a near-halt last month and revealing manufacturing growth eased to its weakest pace since June last year.
Chris Williamson, chief business economist at CIPS survey compiler IHS Markit, noted the composite output index for January was consistent with a quarterly gross domestic product (GDP) growth rate of slightly less than 0.3 per cent. Figures late last month from the Office for National Statistics estimated UK growth in the fourth quarter of last year at 0.5 per cent.
CIPS’s business activity index for UK services fell from 54.2 in December to 53 in January on a seasonally-adjusted basis. Although the index remained significantly above the level of 50 deemed to separate expansion from contraction, the decline signalled a sharp deceleration of growth in this key sector to the weakest pace in 16 months.
Anecdotal evidence indicated that the upturn was hampered by “the non-renewal of finished contracts, unfavourable weather, the loss of existing clients and Brexit uncertainty”, CIPS said.
The new business index for services edged up from 53 in December to 53.3 in January, but was well adrift of last October’s reading of 54.8.
CIPS said: “There were mentions that lingering concerns surrounding Brexit negotiations restricted the extent of the upturn.”
The weak services survey, along with worries over Brexit negotiations, weighed on the pound yesterday.
Sterling was, at 5pm in London, trading around $1.4021, down more than one cent on its close on Friday.
The pound was also weaker against the euro. The single currency was trading around 88.59p at 5pm, up from its pre-weekend close of 88.11p.
Howard Archer, chief economic adviser to the EY ITEM Club think-tank, said of the services sector survey: “Although still very early days, these results suggest that the economy may struggle to replicate the 0.5 per cent GDP growth achieved in Q4 2017.
“The services survey offered few reasons to be upbeat about the near-term outlook either. The new orders balance picked up a little from December’s 16-month low, but it remained below the subdued 2017 average.”
Mr Williamson said: “The pace of UK economic growth slowed sharply at the start of the year as January saw a triple whammy of weaker PMI surveys.
“Service sector expansion slid to a 16-month low, reflecting a marked waning in growth of demand for business and consumer-facing services such as hotels and restaurants.”
He added: “While the fourth-quarter PMI readings were historically consistent with the economy growing at a resilient quarterly rate of 0.4 per cent to 0.5 per cent, in line with the recent GDP estimate, the January number signals a growth rate of just under 0.3 per cent.”
Around 16 per cent of services companies surveyed signalled job creation last month, compared with 13 per cent that reduced headcounts.
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