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| Brexit fears further dent confidence at UK services firms | Brexit fears further dent confidence at UK services firms |
| (35 minutes later) | |
| Worries about the EU referendum, turmoil on financial markets and a faltering global recovery have hit confidence among the UK’s services businesses and knocked their growth to a three-year low. | Worries about the EU referendum, turmoil on financial markets and a faltering global recovery have hit confidence among the UK’s services businesses and knocked their growth to a three-year low. |
| A closely watched survey of companies in the UK’s biggest sector, which covers hairdressers to insurers, showed business activity and new work both expanded at the slowest rate since March 2013. | A closely watched survey of companies in the UK’s biggest sector, which covers hairdressers to insurers, showed business activity and new work both expanded at the slowest rate since March 2013. |
| That mirrored gloomy growth reports earlier on Thursday from services companies in China and the eurozone. | That mirrored gloomy growth reports earlier on Thursday from services companies in China and the eurozone. |
| The UK survey’s headline measure of activity fell to 52.7 in February, from 55.6 in January. That was still above the 50 mark that separates growth from contraction but well below expectations for a reading of 55.1 in a Reuters poll of economists. | The UK survey’s headline measure of activity fell to 52.7 in February, from 55.6 in January. That was still above the 50 mark that separates growth from contraction but well below expectations for a reading of 55.1 in a Reuters poll of economists. |
| In the latest sign that uncertainty about the outcome of June’s EU referendum is hitting spending and hiring decisions, employment growth also slumped in February, according to the latest Markit/CIPS UK Services PMI report (pdf). | In the latest sign that uncertainty about the outcome of June’s EU referendum is hitting spending and hiring decisions, employment growth also slumped in February, according to the latest Markit/CIPS UK Services PMI report (pdf). |
| Related: UK service companies anxious about year ahead | |
| The survey’s compilers said that taken together with reports from the smaller construction and manufacturing sectors earlier this week, the gloomier service news signalled that UK economic growth had slowed to the weakest pace for almost three years. Chris Williamson, the chief economist at Markit, said: “Despite rising slightly from January’s three-year low, business confidence in the service sector remained at a level which has historically presaged an imminent slowing in the economy to near stagnation or worse in coming months. | The survey’s compilers said that taken together with reports from the smaller construction and manufacturing sectors earlier this week, the gloomier service news signalled that UK economic growth had slowed to the weakest pace for almost three years. Chris Williamson, the chief economist at Markit, said: “Despite rising slightly from January’s three-year low, business confidence in the service sector remained at a level which has historically presaged an imminent slowing in the economy to near stagnation or worse in coming months. |
| “Survey responses reveal that firms are worried about signs of faltering demand, but boardrooms have also become unsettled by concerns regarding the increased risk of Brexit, financial market volatility and weak economic growth at home and abroad.” | “Survey responses reveal that firms are worried about signs of faltering demand, but boardrooms have also become unsettled by concerns regarding the increased risk of Brexit, financial market volatility and weak economic growth at home and abroad.” |
| The slowdown in services sector activity reflected sluggish growth in new business for companies last month. New contracts rose at the weakest pace in almost three years, with some firms commenting that rising levels of global economic uncertainty had resulted in delays in clients placing new orders, according to Markit. | The slowdown in services sector activity reflected sluggish growth in new business for companies last month. New contracts rose at the weakest pace in almost three years, with some firms commenting that rising levels of global economic uncertainty had resulted in delays in clients placing new orders, according to Markit. |
| Services employment rose at the slowest pace in two and a half years. | Services employment rose at the slowest pace in two and a half years. |
| Separate PMI reports by Markit from the eurozone suggested private sector growth there decelerated to its weakest rate in 13 months, dragged back by France. | Separate PMI reports by Markit from the eurozone suggested private sector growth there decelerated to its weakest rate in 13 months, dragged back by France. |
| In China, growth in the service sector slowed in February, according to a report from the data provider Caixin. Chinese service sector companies told Caixin that activity and new orders both grew at a slower rate, meaning they also cut back on job creation. | In China, growth in the service sector slowed in February, according to a report from the data provider Caixin. Chinese service sector companies told Caixin that activity and new orders both grew at a slower rate, meaning they also cut back on job creation. |
| The latest UK news will reinforce expectations that interest rates will remain on hold at their record low of 0.5% for many months to come and perhaps into 2017. | The latest UK news will reinforce expectations that interest rates will remain on hold at their record low of 0.5% for many months to come and perhaps into 2017. |
| This week marks seven years of interest rates at their historic low. With global growth slowing and the UK economy expected to lose steam, there is talk on financial markets of the Bank of England cutting interest rates even lower. | This week marks seven years of interest rates at their historic low. With global growth slowing and the UK economy expected to lose steam, there is talk on financial markets of the Bank of England cutting interest rates even lower. |
| Markit’s Williamson said the PMI reports had “moved down into territory normally consistent with the central bank cutting interest rates rather than hiking” interest rates. | Markit’s Williamson said the PMI reports had “moved down into territory normally consistent with the central bank cutting interest rates rather than hiking” interest rates. |
| “The extent of the slowdown will be a shock to policymakers and surely puts to bed any talk of the Bank of England raising interest rates. The focus will instead increasingly shift to whether policymakers may soon need to dig deeper into their toolbox to introduce new measures to shore up the economy with additional stimulus, and what tools might be used,” he said. | “The extent of the slowdown will be a shock to policymakers and surely puts to bed any talk of the Bank of England raising interest rates. The focus will instead increasingly shift to whether policymakers may soon need to dig deeper into their toolbox to introduce new measures to shore up the economy with additional stimulus, and what tools might be used,” he said. |
| James Knightley, economist at the bank ING, said the outcome of the EU referendum would also influence policy as well as the strength of the pound, which has already been hit by Brexit worries. | James Knightley, economist at the bank ING, said the outcome of the EU referendum would also influence policy as well as the strength of the pound, which has already been hit by Brexit worries. |
| “As the referendum approaches, businesses will become more cautious on hiring new workers and implementing investment plans, which will likely see growth rates slow,” he said, reacting to the PMI report. “Should the UK vote to remain an EU member, we are likely to see a bounceback in sentiment and activity in the third quarter and fourth quarter of 2016. However, should it vote to leave then the near-term growth backdrop will deteriorate even further, which will likely result in renewed Bank of England policy stimulus and add to the downside risks for sterling.” | “As the referendum approaches, businesses will become more cautious on hiring new workers and implementing investment plans, which will likely see growth rates slow,” he said, reacting to the PMI report. “Should the UK vote to remain an EU member, we are likely to see a bounceback in sentiment and activity in the third quarter and fourth quarter of 2016. However, should it vote to leave then the near-term growth backdrop will deteriorate even further, which will likely result in renewed Bank of England policy stimulus and add to the downside risks for sterling.” |