UK recession alarm bells ring as services sector contracts
The risk of a UK recession has shot up after the huge services sector contracted in September, causing the biggest cut in employment in over nine years, according to closely-watched survey data.
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The sector – which makes up about 80 per cent of the UK economy – saw new contracts fall for the first time this year. “Firms reported that heightened uncertainty around Brexit had led to the postponement of orders by clients,” said data firm IHS Markit, who compiled the survey.
IHS Markit and the Chartered Institute of Procurement & Supply’s (Cips) services purchasing managers’ index (PMI) slipped to 49.5 in September, down from 50.6 in August. A score of under 50 indicates contraction.
Services is the latest sector to fall victim to Britain’s Brexit crisis and a global economic slowdown driven by the US-China trade war. The news will worry policymakers as the sector had previously proved resilient: it was the only sector to grow when the UK economy contracted by 0.2 per cent in the second quarter
“The vast service sector has now joined manufacturing and construction in decline,” said Chris Williamson, chief business economist at IHS Markit.
Today’s weak reading means the UK is the only developed economy with its services sector in contraction, according to Refinitiv data.
He called September’s decline “ominous,” saying it was “the result of an insidious weakening of demand over the past year rather than a sudden shock”.
“At current levels the surveys point to GDP falling by 0.1 per cent in the third quarter which, coming on the heels of a decline in the second quarter, would mean the UK is facing a heightened risk of recession.”
The downturn caused jobs in the services sector to be cut for the first time in five months and at the fastest rate since 2010. The news adds to signs that Britain’s record-low unemployment could be about to go into reverse.
Duncan Brock, group director at Cips, said Brexit uncertainty and the global slowdown had hurt client orders and consumer spending.
“In this last month before the Brexit deadline, there is little time or vision for a major turnaround in fortunes before the end of the year.”
Chris Sood-Nicholls, head of professional services at Lloyds Bank, said: “Services providers continue to be affected by ongoing uncertainty, and businesses – and to a lesser extent some consumers – are limiting spending as a result.”
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“The dominant trend from the past few months has been stagnation, and deterioration this month doesn’t necessarily change that.”
(Image credit: Getty)