Recession fear as UK's services sector hits reverse

There is growing evidence that Brexit uncertainty is damaging the UK's economy. Picture: PA
There is growing evidence that Brexit uncertainty is damaging the UK's economy. Picture: PA
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Britain is facing a heightened risk of recession after Brexit uncertainty saw activity in the dominant services sector slam into reverse last month, according to a report.

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The closely-watched IHS Markit/CIPS UK services purchasing managers' index (PMI) showed a worse-than-expected reading of 49.5 in September, down from 50.6 in August.
A figure above 50 indicates growth, below that represents contraction.
It marks the first contraction since March and only the fifth in more than a decade.
The services report follows PMI surveys which showed that output also fell across construction and manufacturing, with the all-sector index contracting for the second month in a row - the first such back-to-back contraction since the final two months of 2012.
The all-sector reading also shows the steepest decline since July 2016 following the EU referendum.
It points to a potential 0.1 per cent fall in gross domestic product (GDP) in the third quarter, which would put the UK in a technical recession, following a 0.2 per cent decline between April and June.
Chris Williamson, chief business economist at IHS Markit, which compiles the survey, said: "Only the collapse in confidence immediately following the 2016 referendum has seen a steeper overall deterioration in the economy during the past decade, but September's decline is all the more ominous, being the result of an insidious weakening of demand over the past year rather than a sudden shock.
"At current levels the surveys point to GDP falling by 0.1 per cent in the third quarter which, coming on the heels of a decline in the second quarter, would mean the UK is facing a heightened risk of recession."
He added that the grim readings suggest the Bank of England may look to boost the economy, increasing the "likelihood that the next move in interest rates will be a cut".
The PMI figures showed jobs were cut across the services sector - which accounts for around three-quarters of UK economic output - for the first time in five months and at the steepest rate for nine years.
Workforces have been reduced at 19 per cent of services firms surveyed for the PMI, although most said this was achieved by not replacing staff who left rather than compulsory redundancies.
New contracts also fell for the sixth time this year as firms warned clients were putting orders on hold due to uncertainty over Brexit.
Across all sectors, employment fell at the fastest pace for 10 years.
The figures come after Prime Minister Boris Johnson submitted revised Brexit proposals to the EU on Wednesday, saying that unless Europe compromised, Britain would leave without a deal on October 31.
With little sign of support from the EU and the UK Parliament having passed a law preventing no deal, there appears no end in sight to the Brexit uncertainty that is damaging the economy.
But economist Samuel Tombs at Pantheon Macroeconomics said recession fears may be overdone, with the PMI reports having been "far too downbeat over the last year".
He said: "The survey's poor track record recently means its recession signal should not be believed.
"We continue to expect GDP to rise by 0.3 per cent on a quarter-on-quarter basis in the third quarter and for the MPC (Monetary Policy Committee) to hold back from cutting interest rates, provided that a no-deal Brexit is avoided."

Ruth Gregory, at Capital Economics, said the PMI surveys did not cover Britain’s relatively resilient retail sector nor a recent increase in spending on public services.
She stuck to her forecast for 0.3 per cent growth in the third quarter.
“Nonetheless, the surveys are probably giving us a reasonable steer on the underlying strength of economic activity, and the risks to our Q4/Q1 GDP growth forecasts appear to be firmly to the downside,” she said in an email to clients.
Britain’s economy shrank by 0.2 per cent in the three months to June – the first decline since 2012 – and a second quarterly contraction would meet the recession definition used in Europe.