Services PMI ticks up in December but growth subdued amid Brexit woes

Activity in the UK services sector picked up more than expected in December but remained subdued amid worries about Brexit, according to figures released on Friday.

The IHS Markit/CIPS UK services PMI business activity index rose to 51.2 from the 28-month low of 50.4 seen in November, beating expectations for a reading of 50.7. Despite the beat to consensus, growth conditions remained subdued across the UK services sector at the end of last year, with business activity rising at one of the slowest rates seen in the past two-and-a-half years.

The survey found that Brexit-related concerns were a key factor weighing on business-to-business spending last month, with a number of firms noting that subdued consumer demand had acted as a brake on sales.

Meanwhile, the seasonally-adjusted all sector output index was up slightly from 51.0 in November at 51.6. However, the latest reading pointed to the second-slowest rate of business activity expansion since July 2016.

The index for business expectations fell to 60.2 in December from 60.6 the month before, marking the second-lowest level since 2009.

IHS Markit’s chief business economist Chris Williamson said: "The service sector typically plays a major role in driving economic growth, but is now showing worrying signs of having lost steam amid intensifying Brexit anxiety. The final two months of 2018 saw the weakest back-to-back expansions of business activity since late-2012 and highlight how clarity on Brexit is needed urgently in order to prevent the economy sliding into contraction.

"Combined with disappointing growth in the manufacturing and construction sectors, the meagre service sector expansion recorded in December is indicative of the economy growing by just 0.1%.in the closing quarter of 2018.

"Although increased preparations for a potentially disruptive ‘no deal’ Brexit are helping to boost business activity in some cases, notably in manufacturing, heightened Brexit uncertainty is compounding a broader economic slowdown. Measured across all sectors, business optimism is down to the third-lowest since comparable data were first available in 2012."

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "Despite rising modestly, the business activity index remained weaker than in any other month between August 2016 and October 2018. In addition, the weighted average of the three PMIs in Q4 fell to its lowest level since Q3 2016, pointing to a mere 0.1% quarter-on-quarter rise in GDP.

"Meanwhile, the trivial rise in the new orders balance to just 50.9 in December, from 50.5 in November, and the third consecutive fall in work backlogs, point to weaker growth in services activity ahead. Indeed, services firms were more downbeat about the 12-month outlook for activity than at any other time since July 2016."