UK services sector flatlines as Brexit fears slow economy | Business

Britain’s pivotal services sector has posted its weakest performance since the immediate aftermath of the EU referendum amid growing signs that Brexit uncertainty has slowed the economy to stall speed.

The latest health check of a sector that accounts for almost 80% of UK output showed services companies starting to reduce staff numbers in response to a decline in new business.

Following downbeat news from the manufacturing sectors, the closely watched survey of services from the Chartered Institute of Procurement and Supply and IHS Markit heightened concerns that the UK’s planned exit from the EU at the end of March would be accompanied by an economy flirting with recession.

The CIPS/IHS Markit purchasing managers’ index fell from 51.2 in December to 50.1 in January, barely above the 50.0 level that marks the cut off point between growth and contraction.

IHS Markit said its all-sector index – which includes manufacturing, construction and services – fell from 51.5 to 50.3 last month – the second lowest reading since December 2012.

Chris Williamson, the chief business economist at IHS Markit, said: “The latest PMI survey results indicate that the UK economy is at risk of stalling or worse as escalating Brexit uncertainty coincides with a wider slower slowdown in the global economy.

“Service sector growth ground almost to a halt in January, matching similar disappointing news in the manufacturing and construction sectors. The last three months have seen the economy slip into its weakest growth spell for six years, and indicate that GDP likely stagnated at the start of 2019 after eking out modest growth of just 0.1% in the fourth quarter.”

The survey showed services sector companies becoming more cautious about hiring new staff – casting doubt as to whether the recent record levels of employment will be sustained.

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The report said the reduction in employment was only marginal but was still the first reported for more than six years. People leaving jobs voluntarily were not being replaced, it added.

Thomas Pugh, the UK economist at Capital Economics, said the slowdown in the economy that began in the final quarter of 2018 had worsened in early 2019. “Worries about future demand now appear to be seeping into hiring decisions, which may start to weigh on employment growth,” he said.

“However, if a Brexit deal is agreed, there should be a substantial amount of pent-up demand ready to give GDP growth a boost.”

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