Falling pound appears to give U.K. services companies a lift
The services sector recorded its highest rate of growth since October 2018, partly because some firms recorded a pick-up in new business as a result of the falling pound
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LONDON – The falling pound appears to have helped Britain’s services companies pick up new business in July but the wider economy remains stagnant as the latest Brexit deadline looms into view, a closely watched survey showed Monday.
Financial information company IHS Markit and the Chartered Institute of Procurement & Supply said their ‘all-sector’ purchasing managers’ index – a gauge of business activity across manufacturing, construction and services – rose to 50.3 points in July from 49.2 the previous month.
The increase took the index back above the 50-point threshold that separates contraction from growth. But it remains at historically low levels: with the exception of a brief decline seen in the immediate aftermath of Britain’s June 2016 vote to leave the European Union, the index has only been lower six times since the global financial crisis a decade ago.
The main bright spot is the services sector, which recorded its highest rate of growth since October, partly because some firms recorded a pick-up in new business as a result of the falling pound, which last week slid to a 28-month low below $1.21. For those making last-minute summer holiday plans, the lower pound makes Britain an increasingly attractive proposition, for example.
The pound has fallen sharply in recent weeks amid growing talk within the government of new Prime Minister Boris Johnson that the country will leave the EU on the Brexit date of Oct. 31, with or without a withdrawal agreement. Most economists say a “no-deal” Brexit would lead to a recession as the British economy struggles with the imposition of tariffs on exported goods and other disruptions to trade with the EU.
Fears of a no-deal Brexit are expected to hobble the British economy in the run-up to the scheduled departure date, with firms holding back investment plans until clarity emerges. And with the global economy weakened by an escalation in the trade conflict between the United States and China, there are worries that Britain could sink into a recession. The Bank of England says there is now a one-in-three chance of a recession by early next year even if the country manages to negotiate a smooth EU exit.
“Business worries continued to centre on Brexit-related uncertainty, concerns about slower economic growth at home and abroad, as well as wider geopolitical tensions and political uncertainty, especially in relation to trade wars,” said Chris Williamson, chief business economist at IHS Markit.
An improvement in the services sector in July helped offset further steep declines in manufacturing and construction output. Producers of manufactured goods have reported the sharpest fall in production since July 2012 while the building sector suffered its second-sharpest drop in activity since mid-2009, with only June having seen a steeper fall.