Services sector sees sharper fall in business as uncertainty takes toll

Britain’s powerhouse services sector saw activity fall at a steeper pace in the three months to November as Brexit and political uncertainty wrought further havoc, according to a survey.

The latest CBI service sector report revealed business volumes fell at a sharper pace in the three months to November, with consumer services firms suffering their fifth straight quarter of declines.

Employment in the sector – which accounts for around 80% of UK gross domestic product (GDP) – also appears under pressure, with the survey showing business and professional services firms are expecting to cut back on headcount for the first time since May 2017.

Firms also remained downbeat overall in the sector, although sentiment declined at a slower pace.

And while cost inflation pressures eased, firms saw profits weaken across the sector.

Rain Newton-Smith, the CBI’s chief economist, said: “The current economic climate is holding back UK services firms, which are reporting falling sentiment, declining volumes and weaker profitability.

“Neither is the outlook expected to improve, with firms pessimistic about their prospects for expansion, investment plans having been scaled back and hiring on hold.”

The survey paints the latest gloomy picture of an economy weighed down by uncertainty over Brexit and the political outlook.

The recent so-called flash readings for the data from IHS Markit and CIPS signalled Britain’s private sector contracting at its fastest rate since the aftermath of the Brexit referendum in November.

The Purchasing Managers’ Index (PMI) reading for the UK private sector fell to 48.5, the lowest since July 2016, and down from 50 in October.

It suggested GDP was on course to decline by 0.2% in the fourth quarter, although the PMIs are often more pessimistic than the actual out-turn.

Many economists are pencilling in growth of 0.2% in the final three months of 2019.

Growth has been paltry this year as the Brexit uncertainty has seen firms put spending plans on hold, with consumer confidence also starting to show signs of strain.

The latest CBI survey reported that services firms overall expect to continue to cut back investment on land and buildings and vehicles, plant and machinery over the next twelve months, while spending on IT is expected to increase, but at a pace weaker than the long-run average.

Expectations for spending on machinery fell to their lowest for more than nine years.

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