UK economic growth ‘stalls’ as service sector slides

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Growth in the UK’s key services sector has hit its lowest level since July 2016, prompting fears of stagnation.

The purchasing managers’ index (PMI) from IHS Markit/CIPS sank to 50.4 in November, down from 52.2 in October. A figure above 50 indicates expansion.

“The survey results suggest that the pace of economic growth has stalled,” said Chris Williamson, chief business economist at IHS Markit.

The services sector accounts for about 80% of the UK economy.

The last time the index was this low came in the immediate aftermath of the UK’s referendum vote to leave the European Union.

Earlier in the week, similar surveys of the manufacturing and construction industries were less gloomy.

The manufacturing PMI showed a reading of 53.1 last month, higher than the 51.1 in October, while construction rose to 53.4 from 53.2 in October.

Decline possible

“A contraction of service sector business activity in November was only avoided by firms working through back-orders to an extent not exceeded since 2009,” said Mr Williamson.

“As such, unless demand revives, a slide into economic decline at the turn of the year is a distinct possibility.”

Mr Williamson added that clarity in relation to Brexit arrangements was “urgently needed to help ensure the current stalling of growth does not translate into a downturn”.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the decline was “the clearest indication yet that Brexit uncertainty is draining momentum from the economy”.

He said predictions by the Bank of England’s Monetary Policy Committee of 0.3% economic growth for the October-to-December period now looked “too upbeat”, adding: “While a small fall in GDP isn’t likely, no one should rule it out at this stage either.”

Ruth Gregory, senior UK economist at Capital Economics, described the figure as “thoroughly disappointing”.

She added: “Unless there is a particularly strong bounce back in December, GDP growth of 1.3% seems likely over 2018 as a whole, the weakest since the financial crisis.”