Boost to UK economy as threat of no-deal Brexit recedes

06-05-2019

Services companies returned to growth after contraction in previous month

Britain’s economy recovered some of its momentum last month after businesses shook off the threat of a no-deal Brexit, as data from the country’s dominant services sector showed modest growth.

Services companies returned to positive territory after a brief period of contraction in March, according to a closely watched survey, while further data this week revealed that a dive in manufacturing exports was offset by a mild recovery in the construction sector. Experts said the figures indicated the UK economy was moving ahead but with a reliance on stockpiling – in case of a disorderly Brexit – rather than new orders to boost activity.

The IHS Markit CIPS services sector purchasing managers’ index (PMI) edged higher to 50.4, up from March’s 32-month low of 48.9. Earlier in the week a survey of manufacturers found the headline PMI slipped back to 53.1 last month from 55.1 in March and the construction sector rose to a three-month high of 50.5 in April from March’s 49.7. Anything above 50.0 indicates expansion rather than contraction.

Chris Williamson, chief business economist at IHS Markit, said that taken together the PMIs suggest the UK economy remained weak going into the second quarter of the year.

He said: “The resulting rise in business activity signalled collectively by April’s PMI surveys was only marginal.

“All three sectors were therefore struggling to sustain growth of output and hiring in April, and appear set for further weakness in the near term. Both GDP and labour market data could therefore disappoint as we move into the second quarter,” he said.

With Britain entering what some analysts have termed an economic no man’s land while Brexit talks continue ahead of a new departure date of 31 October, economists expect growth to remain subdued for much of the rest of the year.

A report by the Bank of England on Thursday said officials expected the UK’s GDP to fall in the second quarter to 0.2% from an estimated 0.5% in the first quarter. Threadneedle Street signalled that the number of interest rate rises would probably be higher than expected at the beginning of the year but this would amount to only one more quarter point increase than the one already pencilled in before 2021.

The central bank made clear that all its forecasts were based on the UK achieving a smooth Brexit and a transition deal that allowed businesses to plan for a new arrangement with trading partners in the EU.

The IHS Markit survey found that businesses were already struggling to maintain exports to the EU, which could leave them in a weaker position even with a deal signed in the next few months.

Williamson added that forward-looking indicators such as order books and backlogs of work “hint at a near-term sustained weakness of demand” that has filtered through to a reduction in hiring.

He said: “The PMI surveys recorded the third (albeit very modest) drop in employment seen so far this year, with marginal cuts to headcounts registered in all three sectors.

“Reduced headcounts also in part reflected widespread uncertainty about future business conditions linked in part to worries easing in relation to a potential ‘no-deal’ or ‘hard’ Brexit,” he added.

Source: The Guardian