Brexit blamed for weak services growth in April

Recent Purchasing Managers’ Index readings imply a GDP growth rate of just 0.2 per cent in the second quarter of 2018

The services PMI survey covers restaurants (Getty)

The dominant services sector managed only a modest bounce back in April after the previous month’s weather disruption, spelling further bad news for the broader economy.

The Purchasing Managers’ Index came in at 52.8 in the month, up from the 20-month low of 51.7 in March, but still well below the average for the past year and a half.

Firms surveyed named “Brexit uncertainty” as one of the factors weighing on the sector.

Services account for about 80 per cent of the UK’s GDP.

The Office for National Statistics estimated last week that the overall economy grew by just 0.1 per cent in the first quarter of 2018, the weakest in more than five years.

Chris Williamson of IHS Markit, which compiles the PMI surveys, said that recent survey readings implied a GDP growth rate of just 0.2 per cent in the second quarter too.

“The services survey adds to signs that the rate of economic growth remained disappointingly subdued at the start of the second quarter,” he said.

Disappointing April bounce back

The pound fell against the dollar in the wake of the weak services survey reading, hitting $1.3576, as traders scaled back bets again that the Bank will be confident enough in the underlying momentum of the economy to raise interest rates this month.

“Following today’s data, nobody can have strong conviction that the economy’s Q1 slowdown will be just a blip,” said Samuel Tombs of Pantheon.

The services PMI covers sectors ranging from hotels and restaurants, to computing and IT firms and financial services companies. However, it excludes retailers.

Earlier this week, the April PMIs for manufacturing (10 per cent of the economy) registered a 17-month low for activity, while construction (6 per cent of output) was judged to be only “treading water at best”.

The chancellor, Philip Hammond, attributed the sharp GDP slowdown in the first quarter to the severe snow storms of March, but the Office for National Statistics sought to downplay this explanation.

Many analysts blame a combination of last year’s inflation spike and uncertainty from firms about post-Brexit trade arrangements for the UK’s underperformance relative to the US and the EU since the 2016 Brexit vote.

Chris Sood-Nicholls of Lloyds Bank’s business banking unit said: “These [services] figures suggest that factors such as the continued uncertainty around the UK’s future trading relationships outweigh the impact of poor weather”.

However, there has been a slowdown this year in the eurozone too, with eurostat reporting on Wednesday that the 19-member currency bloc’s GDP grew by 0.4 per cent in the first quarter, down from a 0.7 per cent rate at the end of 2017.