UK services growth subdued - French sector contracts

Brexit uncertainty and global economic slowdown cause the UK's services sector to experience its slowest growth since the Brexit vote, whilst in France the protests add to economic bad news.

Economic slowdown ahead sign
Activity in the UK's all-important services sector, which accounts for more than three-quarters of the nation's GDP, rose at a faster rate than economists had been expecting last month.

December brings slowest services sector growth since Brexit vote

The IHS Markit/CIPS services purchasing managers' index (PMI) showed a reading of 51.2 in December, up from a 28-month low of 50.4 the previous month in an index where a reading above 50 indicates growth. A poll of economists had predicted a December reading of 50.7.Nevertheless, last month's figure represented the second slowest rate of growth in both business and employment since the EU referendum in 2016. IHS Markit described the data as marking a “subdued end to 2018”.IHS economist Chris Williamson said the sector was “showing worrying signs of having lost steam amid intensifying Brexit anxiety”. He added, "The final two months of 2018 saw the weakest back-to-back expansions of business activity since late 2012 and highlight how clarity on Brexit is needed urgently in order to prevent the economy sliding into contraction.

Low growth reflects global econonmic slowdown

"Combined with disappointing growth in the manufacturing and construction sectors, the meagre service sector expansion recorded in December is indicative of the economy growing by just 0.1 per cent in the closing quarter of 2018."Although increased preparations for a potentially disruptive 'no deal' Brexit are helping to boost business activity in some cases, notably in manufacturing, heightened Brexit uncertainty is compounding a broader economic slowdown."Employment growth is already faltering as firms took a more cautious approach to hiring. Both manufacturing and services have seen previously solid hiring trends stall to near-stagnation, underscoring how the uncertainty faced by businesses will inevitably feed through to households as the job market deteriorates."Samuel Tombs, chief UK economist at Pantheon Macroeconomics, commented, "The continued weakness of the business activity index in December adds to evidence that the economy effectively has ground to a halt, primarily due to mounting concerns about Brexit."

Protests hit French economy hard

However, the performance by services in the UK was considerably better than that recorded by the sector in France where the PMI in December dropped to 49.0, indicating contraction and its lowest level for four years.Both services and manufacturing in France have been affected by the ‘gilets jaunes’ demonstrations against the high cost of living and President Emmanuel Macron’s pro-business reform proposals.“The protests added to the growing list of problems faced by Emmanuel Macron,” said Eliot Kerr, IHS Markit economist. “The unexpected downturn due to the social unrest represents significant downside risk to Q4 growth prospects.”Earlier in the week, the eurozone PMI for manufacturing came in at 51.4 for December, down from 51.8 in November and the fifth month running of decline.

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