U.K. Services Defy Brexit Gloom as Economy Maintains Growthby and
PMI declines slightly, but remains well above 50 level
BOE’s Broadbent says Brexit hit to investment may take time
Britain’s powerhouse services sector grew more than forecast last month as the economy continued to display resilience following the June vote to leave the European Union.
IHS Markit said Wednesday its Purchasing Managers Index dipped marginally to 52.6, above the 52.2 forecast in a Bloomberg survey. It marks the second month over 50, the dividing line between expansion and contraction.
The figure follows better-than-expected manufacturing and construction indexes, which point to economic expansion of 0.1 percent in the third quarter, Markit said. Omitting July’s across-the-board slump, the most recent figures suggest growth of about 0.3 percent.
The latest report coincided with a speech by Bank of England Deputy Governor Ben Broadbent, who acknowledged that the economy has proven more resilient than expected since the Brexit vote. He also said the impact on business investment may take time to be felt, though he hadn’t made a decision on whether more stimulus would be needed next month after the BOE’s efforts in August.
“The solid PMI readings for September will cast doubt on the need for any further stimulus from the Bank of England in coming months,” said Chris Williamson, an economist at Markit. “It’s clear, however, that the pace of expansion has cooled” and the economy “remains vulnerable to further setbacks.”
The central bank cut interest rates and revived asset purchases in August as the Brexit vote delivered an immediate blow to consumer and business confidence. It prompted some to predict the economy would fall into recession, but the downturn proved short-lived.
Services sentiment continued to recover from its post-referendum dip in September, though it was still relatively weak as firms “reported ongoing uncertainty regarding the implications of Brexit,” Markit said.
Prime Minister Theresa May has set a March 2017 deadline for beginning formal divorce talks with EU leaders, and signs that the government is opting for a so-called hard Brexit sent the pound to a 31-year low on Tuesday. It was little changed at $1.2730 as of 10:15 a.m. London time on Wednesday.
The weaker currency is putting upward pressure on import prices. Markit said services firms raised their prices at the fastest rate in more than 2 1/2 years.