THE UK services sector cut its workforce at the fastest monthly pace since November 2011 in February as fears over the economic outlook and weak demand prompted firms to delay hiring amid Brexit uncertainty, a survey shows.
The Chartered institute of Procurement & Supply’s services survey reinforces the picture of a UK economy which is broadly stagnating.
CIPS said: “Reports from survey respondents suggested that Brexit-related uncertainty remained by far the most prominent factor acting as a brake on business activity growth in February. There were widespread reports that political uncertainty had encouraged delays to corporate spending decisions and a general rise in risk-aversion among clients.”
Taken together, CIPS’s surveys of February activity in the manufacturing, services and construction sectors point to UK economic growth of just 0.1 per cent in the first quarter.
The UK manufacturing sector cut staff in February at the fastest monthly pace in six years, according to CIPS. And the construction sector saw its output decline in February for the first time in 11 months on CIPS’s measure.
Chris Williamson, chief business economist at CIPS survey compiler IHS Markit, warned that the forward-looking indicators in CIPS’s surveys were flagging an increased risk of UK recession. He highlighted historically weak optimism among UK companies about the prospects for increased activity on a 12-month time horizon.
Mr Williamson said: “The latest PMI (purchasing managers’ index) surveys indicate that the UK economy remained close to stagnation in February, despite a flurry of activity in many sectors ahead of the UK’s scheduled departure from the EU. The data suggest the economy is on course to grow by just 0.1% in the first quarter.
“Worse may be to come when pre-Brexit preparatory activities move into reverse. Many Brexit-related headwinds and uncertainties also look set to linger in coming months even in the case of [Prime Minister Theresa] May’s deal going through. Global economic growth meanwhile remains sluggish, adding an increasingly gloomy backdrop to the UK’s current problems.”
He added: “The headline PMI is already in territory that would normally be associated with a dovish policy bias from the Bank of England, and the weak forward-looking indicators underscore an increased risk of recession.”
CIPS’s headline business activity index for services picked up from a two-and-a-half-year low of 50.1 in January to 51.3 last month on a seasonally adjusted basis. However, CIPS emphasised that the February reading pointed to only marginal growth.
Services companies experienced another fall in new orders in February, according to the survey.
CIPS observed that, where a decline in new work was reported, this was “often linked to heightened Brexit uncertainty”.
It added: “Some firms also cited a tendency among European clients to delay committing to new projects.”
CIPS director Duncan Brock declared that Brexit indecision had struck “another blow to new orders and employment” in the UK services sector in February.
He added: “Any hoped-for progress next month looks like it will be equally stifled.”
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