Growth in Britain’s service sector, which accounts for more than three-quarters of GDP, slowed to a 16-month low last month, primarily as a result of Brexit uncertainty, analysts said.

UK economy off to slow start in 2018

The IHS Markit/CIPS UK Services purchasing managers’ index (PMI) for the sector returned a reading of 53.0 in January, down from 54.2 in December and below economists’ expectations for an index where a reading above 50 indicates growth.Chris Williamson, chief business economist at IHS Markit, commented, “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. Demand for transport and communication services was down for the second straight month. “The softer service sector growth follows news of the manufacturing upturn losing momentum at the start of the year and a near-stagnant construction sector. All together, the PMI surveys point to the slowest pace of expansion since August 2016. “While the fourth quarter PMI readings were historically consistent with the economy growing at a resilient quarterly rate of 0.4-0.5 per cent, in line with the recent GDP estimate, the January number signals a growth rate of just under 0.3 per cent.”

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Brexit and the UK economy

Duncan Brock, director of customer relationships at the Chartered Institute of Procurement & Supply (CIPS), added, “Brexit blame has emerged once again as the reason for the slowdown in growth of services activity, which was at its lowest since September 2016 as consumers reined in spending and displayed anxieties about the future.“It is the impact of rising costs that will place a further strain on business profits as costs continued to rise as a result of the weak pound, and the sector had higher costs for fuel, salaries and food to contend with.”The latest PMI data might cool speculation that the Bank of England’s Monetary Policy Committee (MPC) could raise interest rates as early as May, according to Samuel Tombs, economist at Pantheon Macroeconomics. “January’s report should prompt investors to reassess their view that the chance of the MPC raising interest rates again as soon as May is as high as 50 per cent,” he said. “The latest PMIs strengthen the case for the MPC to take a lengthy pause before raising interest rates again.” 

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Read more about the future of UK business in the Winter issue of our magazine 

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