Services output returns to growth but Brexit uncertainty still weighs

Britain’s dominant services sector returned to growth last month, but output continued to stall on subdued underlying demand.

The IHS Markit/CIPS UK services purchasing managers’ index (PMI) showed a reading of 50.4 in April, higher than the 48.9 recorded a month earlier.

A figure above 50 indicates growth. Economists had anticipated the small rise, with consensus estimates matching the 50.4 reading.

It marks a return to growth following March’s decline, which was the first contraction since July 2016.

However, economists warned that a drop in new work indicated a subdued level of underlying demand, holding back growth.

Chris Williamson, chief business economist at IHS Markit, which compiles the survey, said: “A near-stagnant service sector in April means that all three major parts of the economy were struggling to grow in April.

“Although the service sector joined construction in reporting a return to growth, in both cases the expansions were only marginal.

“An upturn in manufacturing is, meanwhile, showing signs of waning, as a temporary boost from Brexit-related stockpiling faded in April.”

New business fell for the fourth consecutive month in April, making it the longest period of decline since 2009 as domestic consumer and business spending remained subdued.

Optimism rebounded in the latest data, in part due to the extension of the Brexit deadline. Service providers signalled the greatest degree of positive sentiment since September 2018.

The removal of an imminent threat of no-deal helped lift the mood, with respondents citing more favourable projections for their sales and marketing initiatives.

But uncertainty over the UK’s exit from the European Union continued to weigh on businesses, with the survey revealing an impact on demand from European clients.

Job creation also remained low, making the recent phase of staff hiring the weakest since the end of 2012.

Chris Sood-Nicholls, managing director and head of global services at Lloyds Bank Commercial Banking, said: “This month’s return to growth is welcome but services businesses are unlikely to be breathing a sigh of relief quite yet.

“Last month we saw the first reduction in activity in more than two-and-a-half years and the relative shortness of supply chains in services means that these figures can be volatile as they react quickly to events.”