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UK services sector growth slows as coronavirus hits sales

Edmund Heaphy
Finance and news reporter
The City of London, home to many of the UK's largest financial services firms. (Alberto Pezzali/AP)

Growth in the UK services sector slowed in February, as the coronavirus outbreak began to affect sales to clients in overseas markets.

A closely watched survey by IHS Markit found that business optimism nevertheless hit its highest level since March 2015, with the sector’s purchasing managers’ index reading coming in at 53.2, just slightly below analyst expectations.

The services sector is hugely important to the UK economy — it includes finance, law, engineering and consulting — and makes up about 45% of the country’s exports.

PMIs are an indicator of private sector activity and are given on a scale of 1 to 100. Anything above 50 signals growth, while anything below means contraction.

READ MORE: UK manufacturing sector continues rebound but warns on coronavirus impact

Business activity, new orders, and employment all rose at slower rates than in January, IHS Markit said, pointing to the “negative impact on sales from the coronavirus outbreak, particularly to clients in overseas markets.”

February saw the sharpest drop in backlogs of work since September, it said.

Though growth slowed, the sector continues to be buoyed by December’s general election result and the subsequent securing of a Brexit deal, following years of political and economic uncertainty.

“Survey respondents often commented on greater willingness to spend and the release of new projects that had been delayed in the run up to Brexit,” IHS Markit said on Wednesday.

“The post-election rebound in service sector growth lost some of its bounce in February, in part due to coronavirus related disruptions to sectors such as travel and tourism, but continued to expand at an encouragingly robust pace,” said Chris Williamson, the chief business economist at IHS Markit.

Duncan Brock, the group director at the Chartered Institute of Procurement and Supply, said that the outbreak of the virus had affected orders from Asia.

READ MORE: Fears coronavirus threatens recovery in UK construction

Growth in new business and job creation were also affected, primarily due to hesitation about sales pipelines, he said.

Williamson said the survey data was consistent with quarterly UK GDP growth of just over 0.2%. Economic growth was flat in the final quarter of 2019, according to the Office for National Statistics.

Similar PMI data from the manufacturing and construction sectors has pointed to continued rebounds in the UK economy, though they both also warned about the impact of coronavirus.

Respondents to the construction survey on Tuesday said that coronavirus could disrupt construction supply chains and see firms put building plans on hold, while those in the manufacturing sector said on Monday that they were experiencing “rapidly emerging” disruptions due to the outbreak.