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UK service sector growth hits four-month low as political uncertainty bites - business live UK service sector growth hits four-month low as political uncertainty bites - business live
(35 minutes later)
10.33am BST
10:33
UK productivity falls
I hate to bring even more bad news... but Britain’s productivity has fallen.
UK labour productivity, as measured by output per hour, declined by 0.5% in the first three months of this year, according to new figures from the Office for National Statistics.
It’s the first fall since the end of 2015, and it highlights the underlying problems in the UK economy.
Productivity in the services sector shrank by 0.6%, wiping out the benefits of a 0.2% rise in manufacturing productivity.
As this chart shows, productivity has been persistently, and disappointing, weak since the financial crisis:
Britain’s productivity is much weaker than the US, France or Germany, as our workers have to put in more hours to achieve the same economic output.
It’s called the “productivity puzzle”, because economist can’t agree what’s caused it.
One factor is that more people are being employed in low-paid, insecure jobs, where they produce relatively little economic output. Another theory is that companies have resisted buying expensive machinery that would boost productivity, preferring to employ more people instead.
Whatever the reason, it suggests that something rather nasty happened to the UK economy a decade ago when the financial crisis struck./
UK productivity edges back down below Q4 2007 peak in Q1 2017. Full lost decade almost here... pic.twitter.com/RbR9kLTW8f
10.21am BST
10:21
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10.21am BST
10:21
Duncan Brock of the Chartered Institute of Procurement & Supply blames political uncertainty for the drop in UK service sector growth last month.
“A creeping doubt appears to be the cause of this month’s below par performance as the UK’s departure from the EU and the unpredictable political climate continues to impact on consumers and businesses alike.
“Strong growth in new orders and overall activity was destabilised by a reduction in business optimism, which fell to one of the lowest levels since 2011.
10.19am BST
10:19
Despite the slowdown, service sector companies kept hiring staff last month.
However... some reported that it was difficult to find workers with the skills they need.
10.18am BST
10:18
In another blow, UK service sector companies were hit by a steep increase in their costs in June.
Markit explains:
Greater operating costs were linked to a combination of rising staff salaries and increased raw material prices (particularly food and imported items).
Survey respondents noted that intense competition for new work continued to place pressure on pricing power. Reflecting this, the latest rise in average prices charged by service providers was the slowest since July 2016.
10.05am BST10.05am BST
10:0510:05
Service sector slowdown: Snap reactionService sector slowdown: Snap reaction
Ed Conway of Sky News says this morning’s data paints a worrying picture of the UK economy:Ed Conway of Sky News says this morning’s data paints a worrying picture of the UK economy:
Poor economic tidings today: car sales dropping, services sector weakening, productivity falling. Paints picture of a stuttering economyPoor economic tidings today: car sales dropping, services sector weakening, productivity falling. Paints picture of a stuttering economy
Duncan Weldon of Resolution Group points out that Britain’s economy is lagging, just as the eurozone posts its best quarter in six years:Duncan Weldon of Resolution Group points out that Britain’s economy is lagging, just as the eurozone posts its best quarter in six years:
Shorter PMIs: UK economic momentum is slowing, Eurozone accelerating.Shorter PMIs: UK economic momentum is slowing, Eurozone accelerating.
Chris Sood-Nicholls, managing director and head of global services at Lloyds Bank Commercial Banking, says the “uncertain political backdrop” is hurting UK firms:Chris Sood-Nicholls, managing director and head of global services at Lloyds Bank Commercial Banking, says the “uncertain political backdrop” is hurting UK firms:
Many businesses may have delayed investment decisions in the face of an ambiguous political landscape.Many businesses may have delayed investment decisions in the face of an ambiguous political landscape.
“The continued rise in inflation and the general uncertainty is denting consumer confidence which may impact on demand. The question remains as to how much businesses will be looking to invest during the rest of the year to help stimulate demand.“The continued rise in inflation and the general uncertainty is denting consumer confidence which may impact on demand. The question remains as to how much businesses will be looking to invest during the rest of the year to help stimulate demand.
9.56am BST9.56am BST
09:5609:56
Markit: UK's economic resilience is being testedMarkit: UK's economic resilience is being tested
This week’s disappointing PMI surveys suggest that the UK economy will slow over the summer, warns Chris Williamson of Markit.This week’s disappointing PMI surveys suggest that the UK economy will slow over the summer, warns Chris Williamson of Markit.
Here’s his take on this morning’s data:Here’s his take on this morning’s data:
“A slowing in services sector growth completes a triple-whammy of disappointing PMI survey readings. Although the three PMI surveys are running at levels that are historically consistent with GDP growing by around 0.4% in the second quarter, it’s clear that the economy heads into the third quarter losing momentum.“A slowing in services sector growth completes a triple-whammy of disappointing PMI survey readings. Although the three PMI surveys are running at levels that are historically consistent with GDP growing by around 0.4% in the second quarter, it’s clear that the economy heads into the third quarter losing momentum.
“With business optimism having been hit by the intensification of political uncertainty following the general election and commencement of Brexit negotiations, at the same time that households are battling against rising inflation, the indications are that the economy’s resilience is being tested.“With business optimism having been hit by the intensification of political uncertainty following the general election and commencement of Brexit negotiations, at the same time that households are battling against rising inflation, the indications are that the economy’s resilience is being tested.
“There are pockets of growth, notably in financial services and business services, but the overall picture is one of business spending, investment and exports failing to provide sufficient impetus to fully offset the consumer slowdown.“There are pockets of growth, notably in financial services and business services, but the overall picture is one of business spending, investment and exports failing to provide sufficient impetus to fully offset the consumer slowdown.
“Given the deterioration in the forward-looking indicators, such as business optimism and order book growth, the risks are tilted towards the economy slowing in the third quarter.”“Given the deterioration in the forward-looking indicators, such as business optimism and order book growth, the risks are tilted towards the economy slowing in the third quarter.”
9.53am BST9.53am BST
09:5309:53
A hattrick of bad PMIsA hattrick of bad PMIs
The service sector slowdown is the third piece of disappointing UK economic news this week.The service sector slowdown is the third piece of disappointing UK economic news this week.
A reminder:A reminder:
Monday: UK manufacturing PMI dropped to 54.3, from 56.3Monday: UK manufacturing PMI dropped to 54.3, from 56.3
Tuesday: UK construction PMI dropped to 54.8, from 56.0Tuesday: UK construction PMI dropped to 54.8, from 56.0
Wednesday: UK services PMI drops to 53.4, from 53.8Wednesday: UK services PMI drops to 53.4, from 53.8
Now, all those PMI figures are over 50, which indicates that Britain’s private sector kept growing.Now, all those PMI figures are over 50, which indicates that Britain’s private sector kept growing.
But there are some chunky falls, particularly in the factor data, which suggest June wasn’t a great month for the economy -- especially as we know that car sales fell too....But there are some chunky falls, particularly in the factor data, which suggest June wasn’t a great month for the economy -- especially as we know that car sales fell too....
9.44am BST9.44am BST
09:4409:44
Business optimism hit by Brexit bluesBusiness optimism hit by Brexit blues
Worryingly, today’s report also shows that UK business optimism has fallen to its weakest level since last summer’s EU referendum.Worryingly, today’s report also shows that UK business optimism has fallen to its weakest level since last summer’s EU referendum.
Markit says:Markit says:
Aside from the post-referendum dip last summer, the level of business optimism was the weakest since December 2011. Survey respondents cited anxiety related to the Brexit negotiations, alongside worries about the general economic outlook and heightened political uncertainty. Aside from the post-referendum dip last summer, the level of business optimism was the weakest since December 2011.
Survey respondents cited anxiety related to the Brexit negotiations, alongside worries about the general economic outlook and heightened political uncertainty.
Updated
at 10.14am BST
9.42am BST9.42am BST
09:4209:42
UK service sector growth hits four-month lowUK service sector growth hits four-month low
Breaking: Growth in Britain’s service sector has slowed to its lowest in four months, according to data firm Markit.Breaking: Growth in Britain’s service sector has slowed to its lowest in four months, according to data firm Markit.
Service sector companies, who make up around of the 80% of the UK economy, have reported that they experienced subdued business and consumer confidence in June.Service sector companies, who make up around of the 80% of the UK economy, have reported that they experienced subdued business and consumer confidence in June.
Some blamed delayed decision-making due to June’s general election, and the uncertainty over Britain’s exit from the European Union.Some blamed delayed decision-making due to June’s general election, and the uncertainty over Britain’s exit from the European Union.
This pulled the UK Services PMI down to 53.4, down from 53.8 in May.This pulled the UK Services PMI down to 53.4, down from 53.8 in May.
That’s still over the 50-point mark that signals if the sector is expanding or contracting.That’s still over the 50-point mark that signals if the sector is expanding or contracting.
Many firms reported that new business growth slowed in June; a sign that political uncertainty is hitting the economy.Many firms reported that new business growth slowed in June; a sign that political uncertainty is hitting the economy.
Markit says:Markit says:
The slowdown in business activity growth in June was linked to a softer rise in incoming new work across the service economy. Moreover, the latest increase in new work was the weakest for nine months.The slowdown in business activity growth in June was linked to a softer rise in incoming new work across the service economy. Moreover, the latest increase in new work was the weakest for nine months.
Anecdotal evidence cited Brexit-related risk aversion and heightened economic uncertainty as key factors holding back client spending.Anecdotal evidence cited Brexit-related risk aversion and heightened economic uncertainty as key factors holding back client spending.
More to follow....More to follow....
UpdatedUpdated
at 9.46am BSTat 9.46am BST
9.32am BST9.32am BST
09:3209:32
Graham Hiscott, business editor of the Mirror, says weakening consumer spending is hitting the car industry:Graham Hiscott, business editor of the Mirror, says weakening consumer spending is hitting the car industry:
New cars sales fell for the third month in a row, with demand for diesels diving 14.7%, says @SMMT. More evidence of consumer slowdown.New cars sales fell for the third month in a row, with demand for diesels diving 14.7%, says @SMMT. More evidence of consumer slowdown.
Howard Archer of the EY Item Club agrees that April’s tax changes are a factor (there’s a good explanation here on Auto Express)Howard Archer of the EY Item Club agrees that April’s tax changes are a factor (there’s a good explanation here on Auto Express)
#SMMT report #UK new #car sales down 4.8% y/y in Jun. Third successive fall after strong Q1 when some sales brought forward by VED changes#SMMT report #UK new #car sales down 4.8% y/y in Jun. Third successive fall after strong Q1 when some sales brought forward by VED changes
9.29am BST9.29am BST
09:2909:29
Car sales to UK individuals, rather than businesses, shrank by nearly 8% in June.Car sales to UK individuals, rather than businesses, shrank by nearly 8% in June.
Sam Tombs of Pantheon Economics predicts further falls in the month ahead.Sam Tombs of Pantheon Economics predicts further falls in the month ahead.
He’s tweeted a graph, showing how consumer confidence can be a leading indicator for the car market (he’s shifted the consumer confidence figures ahead by six months)He’s tweeted a graph, showing how consumer confidence can be a leading indicator for the car market (he’s shifted the consumer confidence figures ahead by six months)
UK private new car sales down 7.8% y/y in June and down 4.8% y/y in H1 overall. The slump in consumer confidence signals further falls ahead pic.twitter.com/wdue5GRXIwUK private new car sales down 7.8% y/y in June and down 4.8% y/y in H1 overall. The slump in consumer confidence signals further falls ahead pic.twitter.com/wdue5GRXIw
9.25am BST9.25am BST
09:2509:25
Diesel car sales fell particularly sharply last month, by almost 15%.Diesel car sales fell particularly sharply last month, by almost 15%.
Chris Giles of the FT says the figures are a concern:Chris Giles of the FT says the figures are a concern:
New car sales beginning to look rather sickly pic.twitter.com/zhY0JaIZMiNew car sales beginning to look rather sickly pic.twitter.com/zhY0JaIZMi
9.18am BST9.18am BST
09:1809:18
UK car sales fall againUK car sales fall again
Breaking: UK car sales have fallen for the third month running.Breaking: UK car sales have fallen for the third month running.
Car registrations declined by 4.8% in June, new figures from the Society of Motor Manufacturers and Traders show. That means that sales so far this year are down by 1.1%, following steeper falls in April and May.Car registrations declined by 4.8% in June, new figures from the Society of Motor Manufacturers and Traders show. That means that sales so far this year are down by 1.1%, following steeper falls in April and May.
The SMMT blames recent tax changes for the fall. It says there was “market turbulence’ as drivers rushed to buy vehicles in March before new vehicle excise duty changes pushed up the cost of running many cars.The SMMT blames recent tax changes for the fall. It says there was “market turbulence’ as drivers rushed to buy vehicles in March before new vehicle excise duty changes pushed up the cost of running many cars.
Mike Hawes, SMMT Chief Executive, says the drop in car sales isn’t a cause for alarm.Mike Hawes, SMMT Chief Executive, says the drop in car sales isn’t a cause for alarm.
“As forecast, demand for new cars has started to cool following five consecutive years of solid growth but the numbers are still strong and the first half of the year is the second biggest on record.“As forecast, demand for new cars has started to cool following five consecutive years of solid growth but the numbers are still strong and the first half of the year is the second biggest on record.
Provided consumer and business confidence holds, we expect demand to remain at a similarly high level over the coming months.Provided consumer and business confidence holds, we expect demand to remain at a similarly high level over the coming months.
But... this decline may be a signal that consumers are being more cautious, or struggling to cope with rising inflation.But... this decline may be a signal that consumers are being more cautious, or struggling to cope with rising inflation.
I’ll pull some more reaction together now.I’ll pull some more reaction together now.
9.08am BST9.08am BST
09:0809:08
You can read the full eurozone PMI report here.You can read the full eurozone PMI report here.
9.06am BST9.06am BST
09:0609:06
Eurozone service sector growth slows, but still strongEurozone service sector growth slows, but still strong
It’s official: The eurozone private sector has posted its best quarter since 2011, despite a slight slowdown in June.It’s official: The eurozone private sector has posted its best quarter since 2011, despite a slight slowdown in June.
That’s according to this morning’s service sector data from Markit, plus manufacturing surveys released on Monday.That’s according to this morning’s service sector data from Markit, plus manufacturing surveys released on Monday.
Markit reports that its service sector PMI dropped to 55.4 last month, down from 56.3 in May.Markit reports that its service sector PMI dropped to 55.4 last month, down from 56.3 in May.
That drags the ‘composite PMI’, covering the whole private sector, down to 56.3 from 56.8.That drags the ‘composite PMI’, covering the whole private sector, down to 56.3 from 56.8.
That’s comfortably over the 50 point mark that separates expansion from contraction. Firms reported that new work kept rolling in, boosting business confidence and leading to strong job creation.That’s comfortably over the 50 point mark that separates expansion from contraction. Firms reported that new work kept rolling in, boosting business confidence and leading to strong job creation.
Chris Williamson of Markit says the figure suggest the eurozone economy grew by an “impressive” 0.7% in the second quarter of this year.Chris Williamson of Markit says the figure suggest the eurozone economy grew by an “impressive” 0.7% in the second quarter of this year.
The dip in the PMI in June certainly doesn’t look like the start of a slowdown. Growth of new orders accelerated very slightly to reach the second- highest in just over six years, and companies are struggling to satisfy this increase in demand.The dip in the PMI in June certainly doesn’t look like the start of a slowdown. Growth of new orders accelerated very slightly to reach the second- highest in just over six years, and companies are struggling to satisfy this increase in demand.
“Operating capacity is being strained despite the region seeing the best spell of employment growth for a decade in recent months.“Operating capacity is being strained despite the region seeing the best spell of employment growth for a decade in recent months.
“Rising demand is also boosting firms’ pricing power, both for goods and services. While price pressures have cooled since earlier in the year, linked mainly to lower global commodity prices, this is still the strongest period of inflationary pressure that the region has seen for six years.“Rising demand is also boosting firms’ pricing power, both for goods and services. While price pressures have cooled since earlier in the year, linked mainly to lower global commodity prices, this is still the strongest period of inflationary pressure that the region has seen for six years.