Confidence in services sector hits lowest level since Brexit vote

Private sector activity contracts for the fourth consecutive month to 49.7 remaining below the 50 point mark. Image Simon Dawson Bloomberg

IHS Markit's final eurozone services business activity index printed at 53.5, up from a flash reading and consensus of 53.4 and July's 53.2.

The services employment sub-index dipped to 53.2 from 53.5, the lowest since the start of the year, and an overall future output sub-index dropped to a more than six-year low of 55.4 from 58.8.

According to the latest IHS Markit's Purchase Managers' Index (PMI), it signals that the United Kingdom economy is contracting at a rate of 0.1% and unless something brings about a bounce in September, Britain could slide into a recession. A Reuters poll of economists had pointed to a reading of 51.0.

Some individual components in the survey, however, were less encouraging and indicated momentum in the services sector may be slipping.

The U.K. economy shrank in the three months through June as businesses cut back on investment in the face of growing uncertainty about when and how the country will leave the European Union. Anything below 50 in the survey of industry insiders is seen as a sector in reverse.

"Reports from survey respondents cited a sustained headwind from Brexit-related uncertainty and subdued corporate spending", the firm noted.

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The data also revealed: "Moreover, new export work stalled, following a modest expansion in July".

Confidence among companies in the sector that includes hotels, restaurants and financial services dropped to the lowest level since July 2016, reflecting concerns about the impact of domestic political uncertainty.

According to the survey, which is monitored by the government and the Bank of England for early warning signs from the economy, meagre growth in the service sector failed to offset sharp declines in manufacturing output and construction activity last month.

The survey showed that many service providers were relying on backlogs of work to sustain growth as new orders weakened to reach their slowest level in seven months, with new work from overseas being particularly sluggish.

"The weaker PMI readings for India's services sector match the trend noted in the manufacturing industry, bringing unwelcome news of a cooling economy halfway through the second quarter of fiscal year 2019-20", said Pollyanna de Lima, Principal Economist at IHS Markit. However, with the current slowdown intensifying, as seen from the first quarter GDP numbers and high frequency indicators, it remains to be seen for how long sentiment will remain high.

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