Photographer: Simon Dawson/Bloomberg

U.K. Services Slow as Economy Shows Signs of Losing Momentum

  • Sector expands the least in four months in June, Markit says
  • Confidence falls due to uncertainty surrounding Brexit

Britain’s dominant services sector expanded the least in four months in June, adding to evidence that the economy is weakening as Brexit negotiations start in earnest.

IHS Markit’s Purchasing Managers Index fell to 53.4 from 53.8 in May, IHS Markit said in London on Wednesday. Economists in a Bloomberg News survey had predicted a reading of 53.5, above the 50 level that divides expansion from contraction.

The survey follows IHS Markit’s factory and construction reports earlier this week that showed both industries cooling. Businesses are calling on Prime Minister Theresa May to prioritize the economy in talks to leave the European Union after she lost her parliamentary majority in a snap election.

IHS Markit economist Chris Williamson said while the three surveys point to economic growth of 0.4 percent in the second quarter -- double that of the previous three months -- momentum was ebbing.

“The risks are tilted towards the economy slowing in the third quarter,” said Williamson. “The overall picture is one of business spending, investment and exports failing to provide sufficient impetus to fully offset the consumer slowdown.”

The report underscores the Bank of England’s dilemma as the pound’s drop drives inflation above target, prompting some officials to call for higher interest rates. The majority voted to keep rates a record low last month on concern that the economy isn’t yet strong enough for tighter policy.

Services confidence fell “markedly” from May, with respondents citing concerns about the Brexit negotiations, the economy and political uncertainty, IHS Markit said.

Orders among services providers increased at their slowest pace in nine months. Anecdotal evidence indicated spending was held back by “subdued” business and consumer confidence, while the June 8 national election prompted some clients to delay decisions, IHS Markit said.
In contrast, the pace of job creation was at its fastest for 14 months and some companies commented on difficulties recruiting staff, it said.

The services report also showed that the rise in input costs and the average prices charged eased, with “intense competition” curbing the latter.

— With assistance by Jill Ward, Mark Evans, and Harumi Ichikura

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