Service sector slips back following EU vote uncertainty

European Union flag and national flags in front of the European Parliament in Strasbourg, eastern France

The closely-watched Markit/CIPS services purchasing managers’ index (PMI) recorded a worse-than-expected 52.3 in June, down from 53.5 in May and below economist expectations of 52.8. A reading above 50 indicates growth.

Business activity in the services sector matched a 38-month low last seen in April as mounting uncertainty surrounding the EU referendum “weighed on workloads and incoming new business”.

The responses were collected between June 13 and 28, with 89 per cent coming in before the referendum result on June 24. The update from the services sector, which accounts for around 78 per cent of the UK economy, comes on the back of upbeat manufacturing data and a dire performance from the construction industry in the run-up to the Brexit vote.

The manufacturing industry PMI stepped up to a five-month high in June, while Britain’s builders saw the construction sector experience its worst month in seven years as Brexit uncertainty triggered a shock contraction.

Chris Williamson, chief economist at Markit, said the string of economic surveys for June pointed to a slowdown in the UK economy.

He said: “The PMI surveys indicate that the pace of UK economic growth slowed to just 0.2 per cent in the second quarter, with a further loss of momentum in June as Brexit anxiety intensified. Hiring has also clearly been hit as firms lack clarity on the economic outlook. Business optimism in the vast service sector is down to a three-and-a-half-year low. A further slowing, and possible contraction, looks highly likely in coming months as a result of the uncertainty created by the EU referendum.

“However, with the June PMIs having already fallen into territory that would normally be associated with the Bank of England cutting interest rates, it’s unlikely that policymakers will wait for more data before unleashing additional monetary stimulus. More policy is therefore likely in the coming weeks.”

The study found that the volume of new business picked up slightly last month, but the growth was still the second weakest since the upturn three and a half years ago.