UK services sector stagnates as new orders fall on Brexit fears

The UK’s service sector stagnated last month in another sign that the economy is subdued.

The figures round off another set of weak industry figures which mean that the UK private sector has suffered its longest period of contraction since the financial crisis.

The closely-watched IHS Markit/CIPS UK services purchasing managers’ index (PMI) ticked up slightly to 50, from a figure of 49.5 in September, which had seen the sector in decline.

This means that output for the sector was flat for the month as a figure above 50 indicates growth, and below that represents contraction.

The sector was subdued as the volume of new work for UK firms in the sector continued to decline, adding to weak PMI figures from the construction and manufacturing sectors in recent days.

Analysts said the figures from across the sectors reveal another decline in total private sector output in October.

Chris Williamson, chief business economist at IHS Markit, said there have now been contractions in four of the past five months, representing the “worst spell since 2009 during the global financial crisis”.

The service sector survey revealed flat output as existing contracts helped to buoy companies amid the decline in new work, helping it to move slightly ahead of analyst forecasts.

New work fell for the seventh month so far this year, with the rate of decline the fastest since April.

The report said there were increased job losses in the sector, although the rate of redundancies slowed down.

It said the outlook improved slightly as firms expected Brexit to be resolved early next year, reducing uncertainty, but sentiment by business owners remained weak.

Businesses said that “uncertainty around Brexit also undermined international demand for UK-based services” as new export business continued to decline.

Cost pressures at UK service providers continued to build in October, linked by survey respondents to wages and salaries, fuel, energy, foodstuffs and imported items.

Nevertheless, companies also reported an improved outlook for sector activity, as firms suggested they felt uncertainty would be reduced over Brexit.

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: “Without any real expectation for significant change in October, the sector stuttered and stalled, delivering a lifeless set of results as new business from domestic and export markets dried up and orders fell for the second month in a row.

“In terms of staff hiring, this is one of the worst service sector performances since 2011, as job creation became job cutting for the fifth time this year.

“Even the impending October deadline was not enough to stem the flow of hopelessness amongst service providers, as optimism remained at low levels.”