Yahoo Finance UK economy hit as service sector reports big fall in new orders
Britain’s flagging economy suffered a further blow in October after companies in the key services sector reported a decline in new orders for the seventh month this year and car sales slumped again, taking the annual decline to 6.7%.
Analysts blamed the weaker outlook on Brexit uncertainty, which continued to take its toll on business and consumer confidence at home and abroad.
Services firms said export orders were the worst affected last month, falling at the same pace as the near record fall in September.
Rising import prices also put a squeeze on firms’ profitability, prompting many to lay off workers, some through compulsory redundancies.
Activity across the services sector was stagnant with the IHS Markit/Cips purchasing managers’ index (PMI) rising slightly to 50.0 last month from September’s 49.5. A figure above 50 indicates growth.
The modest increase from September reflected reports from some firms of optimism about a resolution to the wrangling over Brexit in the new year following the election.
But with the manufacturing and construction sectors in recession, the lack of growth in the services sector meant the economy was suffering its worst period since the 2008 financial crash, said IHS Markit chief business economist Chris Williamson.
Brexit uncertainty also continued to hit car sales. The Society of Motor Manufacturers and Traders (SMMT) reported that new car sales fell by 10,348 last month to 143,251, compared with 153,599 in October 2018 – a fall of 6.7%.
The trade body said the decline was driven by a big drop in private purchases, suggesting that consumers are nervous about making major purchases.
The SMMT blamed “a tough environment for businesses and consumers as economic and political uncertainty continued to impact confidence”.
So far this year, the new car market is down 2.9% compared with the first 10 months of 2018.
Mike Hawes, the SMMT chief executive, said the market had suffered from waning confidence, though there was some support from customers who wanted to buy environmentally friendly vehicles. Sales of battery electric vehicles rose 236% year-on-year in September, and were up by 151.8% in October.
“The growth in alternatively fuelled cars is very welcome, showing increasing buyer appetite for these new technologies,” Hawes said.
“The overall market remains tough, however, with October now the year’s eighth month of decline and in need of an injection of confidence.”
Williamson said private sector output was going through its worst period for a decade: “Contractions have now been recorded in four of the past five months, marking the worst spell since 2009 during the global financial crisis.”
The seasonally-adjusted IHS Markit/CIPS all-sector output index rose from 48.8 in September to 49.5 in October. That was a weaker rate of contraction, but the survey also found that the volume of new business fell at a pace similar to that in September.
Williamson said the October figure was historically consistent with GDP declining at a quarterly rate of 0.1%, similar to the pace of contraction in GDP signalled by the surveys in the third quarter.
“While official data may indicate more robust growth in the third quarter, the PMI warns that some of this could merely reflect a payback from a steeper decline than signalled by the surveys in the second quarter, and that the underlying business trend remains one of stagnation at best,” he added.
The official update on the UK’s GDP is due on Monday, and is expected to signal economic growth of around 0.3% in the third quarter.
