THE UK economy stagnated over the last two months, a survey has signalled, after below-trend growth of 0.6 per cent in the second quarter.
The survey, published yesterday by the Chartered Institute of Procurement & Supply, shows the services sector achieved modest growth in August after seeing its output drop in July at the fastest pace since March 2009 in the wake of the Brexit vote.
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Chris Williamson, chief economist at survey compiler Markit, noted CIPS’s composite output measure for the UK services, manufacturing and construction sectors had averaged 50.3 over July and August, signalling “near-stagnation”.
Scott Bowman, UK economist at consultancy Capital Economics, said: “We think an average of the July and August surveys paints a more accurate picture of the economy post-Brexit [vote]. And this is consistent with quarterly GDP (gross domestic product) growth of around zero. The CBI (Confederation of British Industry) growth indicator for August – released over the weekend – also points to quarterly growth close to zero.”
And Mr Bowman predicted that, against this weak economic backdrop, the Bank of England’s Monetary Policy Committee would cut UK base rates further in November, to just 0.1 per cent.
The MPC cut base rates from 0.5 per cent to a fresh record low of 0.25 per cent in August, as it took emergency action amid warnings from economists about the dangers of recession in the wake of the UK electorate’s June 23 vote to leave the European Union.
Highlighting the likelihood of only very marginal growth for the UK over the third quarter as a whole, even if there was further expansion this month, Mr Williamson said: “Assuming further growth is signalled by the September PMI (purchasing managers’ index) surveys, we expect the economy to have eked out a modest GDP expansion of 0.1 per cent in the third quarter.”
CIPS’s services survey signals this sector, like manufacturing, benefited in August from the plunge in the pound following the Brexit vote. Services companies reported increases in export activity and domestic tourism.
The business activity index for services rose from 47.4 in July to 52.9 in August on a seasonally-adjusted basis, moving back above the level of 50 deemed to separate expansion from contraction.
The employment index edged up from 50 in July to 50.8 in August, signalling a very modest increase in the services sector workforce.
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