UK private sector output suffers worst fall in over three years
The UK’s private sector suffered its sharpest fall in output in over three years this month, according to new survey data, as the huge services sector shrank.
A lack of clarity over Brexit and fresh uncertainty due to the General Election weighed on growth, said respondents to the survey by data firm IHS Markit and the Chartered Institute of Procurement and Supply (Cips).
Read more: UK avoids recession but annual growth slowest in a decade
Sterling traders were jolted by the data, sending the pound down 0.24 per cent against the dollar this morning to $1.287.
“The weak survey data puts the economy on course for a 0.2 per cent drop in GDP in the fourth quarter,” said Chris Williamson, chief business economist at IHS Markit.
The UK economy – like many around the world – has struggled in 2019. Ongoing Brexit uncertainty has in particular weighed on UK growth, however, as firms have put off investment.
Official figures released earlier this month showed that Britain avoided recession in the third quarter, but nonetheless experienced its worst economic growth in almost 10 years.
The private sector purchasing managers’ index (PMI) – a closely-watched gauge of activity released today – fell significantly in a preliminary reading to 48.5 in November, down from 50 in October.
A score of under 50 indicates contraction on the survey, which is also carried out with the Chartered Institute of Procurement and Supply (Cips).
Williamson said: “With an upcoming general election adding to Brexit-related uncertainty about the outlook, it’s no surprise to see UK businesses reporting falling output and orders in November.”
Read more: Eurozone PMI: Economy stagnates as German services sector plummets
He added: “The PMI surveys are not only warning that the underlying trend in the economy is deteriorating markedly, but also that the labour market is cooling.”
Private sector firms responded to a lack of demand by cutting staff for the third month in a row in November, the survey showed, although the fall was marginal.
‘Worrying’ services sector performance
Falling employment – which has also been shown in the official data – could be a problem for the economy as consumer strength has been a strong point in 2019.
Some survey respondents said consumer spending was weaker in November, helping to push the private sector gauge to a score of 48.6. This signals a contraction in the sector which makes up over 75 per cent of the economy, and was the worst reading since July 2016.
This was the first time IHS Markit and Cips have released “flash” PMIs for the UK. Thomas Pugh, UK economist at Capital Economics, said they will “only stoke fears that the economy is heading for a further slowdown at the end of the year”.
Yet he said: “The PMIs have been unreliable recently. The composite PMI has been consistent with the economy stagnating in the year-to-date, whereas three-month on three-month growth has averaged 0.2 per cent.”
Nonetheless, Howard Archer, chief economic adviser to the EY Item Club, said: “It was particularly worrying to see the dominant services sector recording its worst performance for 40 months and seeing a clear drop in output.”
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He said: “The detail of the November services survey was pretty concerning across the board, which is worrying for future activity.”
“New business contracted in November for a third month running. Domestic political uncertainties were reported to be weighing on business demand especially from large corporates while consumers were also said to be more subdued.”