UK Gradually Losing Momentum, Optimism

Britain’s services sector grew at the slowest pace in almost a year in August as economic uncertainty reduced demand.

IHS Markit said its purchasing managers’ index for the largest part of the economy fell to 53.2, the lowest since September 2016, from 53.8 in July. That was a sharper drop than forecast by economists in a Bloomberg survey, although the gauge continues to signal growth.

Markit’s industry reports—which include manufacturing and construction—suggest the economy will grow about 0.3% this quarter, matching the pace of the three months through June. But chief economist Chris Williamson warned the decision to leave the European Union is weighing on optimism and momentum is “gradually being lost”.

The services survey showed that a measure of new business weakened, with survey respondents citing “fragile” confidence. The slowdown in August was most evident in hotels, restaurants and other consumer-facing businesses.

Cost pressures intensified, due to wages, fuel bills and imported-goods prices, and for some there was some concern that the pound’s recent drop against the euro could worsen the situation. Companies’ charges also increased, though some said subdued demand limited their scope to pass on higher expenses.

The Markit survey also showed that there’s pressure on operating capacity, demonstrated by the steepest rise in backlogs of work since July 2015. That rising workload saw the rate of job creation accelerate to its strongest since the start of 2016.

The services slowdown is likely to add to the case for continued record low interest rates from the Bank of England whose policymakers meet next week, Williamson said.

Construction Falls

Growth in Britain’s construction firms fell unexpectedly to a one-year low in August, hit by an investment slump in the commercial sector as Brexit uncertainty weighed on the economy, a survey showed on Monday, Reuters reported.

Britain’s economy had its slowest first half of the year since 2012 as households came under pressure from a big rise in inflation following the fall in sterling caused by last year’s Brexit vote. So far, construction, manufacturing and exports have failed to compensate for the consumer slowdown.

Civil engineering activity was broadly flat, while the commercial construction sector contracted at the fastest pace since July last year—just after Britain voted to leave the European Union.

“There were signs that UK construction firms are bracing for the soft patch to continue into this autumn, with fragile business confidence contributing to weaker trends for job creation and input buying during August,” Tim Moore, an associate director at IHS Markit, said.

Survey compiler IHS Markit said the murky economic outlook for Britain weighed on commercial building, with clients delaying spending decisions or even scaling back projects. New orders across construction as a whole fell for a second month, albeit not as sharply as in July.

Manufacturers Cash In

By contrast, an IHS Markit survey showed manufacturing had a good August, helped by gathering speed in the eurozone. A separate industry survey published overnight showed the biggest proportion of British manufacturers in at least 20 years reporting higher output and orders, despite waning confidence in the outlook at home.

Factories are enjoying some of the best conditions in two decades as the fall in the pound and a strengthening global economy boost factory orders and rates of production. More manufacturers are reporting that their order books and levels of output are increasing than at any time since 1995, according to EEF, the manufacturers’ organization.

A report by EEF with BDO, the accountancy and business advisers, reveals that manufacturers have “stepped up a gear” going into the second half of the year, as almost every measure of growth in the sector—including investment, employment and total orders—showed a double-digit rise.

Prices paid by services firms grew at the fastest pace in six months, potentially adding to Britain’s inflation rate which is already heading for about 3%, above the central bank’s 2% target.

Meanwhile, the archbishop of Canterbury, Justin Welby, Tuesday claimed the British economy was 'broken' and the social divide was widening. He warned the gap between rich and poor was 'significant and destabilizing' for the country.