- Survey suggests economy may expand 0.2% this quarter
- New business grows at slowest rate in more than three years
Activity in U.K. services remains “frustratingly weak” despite recovering last month from a three-year low, according to Markit Economics.
Alongside feeble readings in manufacturing and construction, the latest data indicate the U.K. economy may expand just 0.2 percent this quarter, Markit said. That compares with 0.4 percent growth in the first three months of the year and marks the weakest level since 2012.
The Purchasing Managers Index for services, the biggest part of the economy, rose to 53.5 in May from 52.3, beating economists’ forecast for 52.5. While sentiment improved, new business grew at the slowest rate in more than three years and the pace of jobs growth also slowed.
Uncertainty surrounding the U.K.’s June 23 vote on its European Union membership is weighing on investment and hiring, with the Bank of England and other institutions warning that leaving the bloc would further damage the economy. Still, the referendum is just one factor holding back growth, according to Markit.
“Brexit has already had a detrimental impact on one-in-three companies, meaning growth could rebound in the event of a ‘remain’ win,” said Chief Economist Chris Williamson in London. “However, the extent of any revival may be limited by weak underlying demand: May also saw widespread ongoing concerns about the fragility of demand both at home and abroad.”
There is some evidence that contracts are being delayed because of the EU vote, Markit said. While it blamed weak new business for slower hiring, some companies also cited the new National Living Wage, a higher minimum wage that was introduced in April, as an impediment.
The survey “provides further evidence, on top of recent labor market and business investment data, that firms are delaying hiring and investment in response to uncertainty surrounding the result of the EU referendum,” said James Smith, an economist at ING.