UK economy ‘losing momentum’ as service sector slows – IHS Markit

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Expansion in the UK’s services sector was much slower than expected in February, according a closely-watched survey, in a potential sign that the economy is losing momentum after its unexpected resilience in 2016.

The purchasing managers’ index for the service sector slipped to 53.3, from the previous month’s 54.5. Although still comfortably above the 50 reading that indicates growth, economists had expected only a modest decline to 54.1.

Businesses reported that higher costs and squeezed consumer finances dragged on growth.

The result marks the first time the reading has declined for two months in a row since the Brexit vote.

The services sector, which covers everything from hotels to banking, accounts for nearly 80 per cent of Britain’s economic output. The disappointing result, following on from an unexpected slowdown in the manufacturing survey earlier this week, sent the composite reading for the whole economy down to 53.8. Economists had expected the figure to climb to 55.6.

The data sent sterling slumping to its weakest point since mid-January, with a 0.27 per cent decline on the day to $1.2224.

IHS Markit’s PMI surveys question firms on indicators such as orders, hiring and inventories to give a picture of the overall health of the economy, with the results seen as useful early indicators of economic growth.

Chris Williamson, IHS Markit chief business economist, said:

A further slowdown in UK business activity growth in February adds to evidence that the economy has lost momentum after the impressive expansion seen at the end of last year.

Weaker consumer spending was a key cause of slower service sector growth, suggesting that household budgets are starting to crack under the strain of higher prices and weak wage growth.

Second chart via Bloomberg

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