United Kingdom economy under pressure as Brexit deadline approaches

Andrew Cummings
January 6, 2019

Rob Dobson, director at IHS Markit (Stuttgart: A1139A - news), which compiles the survey, said: "December saw the UK PMI rise to a six-month high, following short-term boosts to inventory holdings and inflows of new business as companies stepped up their preparations for a potentially disruptive Brexit".

The Final Euro Zone Composite Purchasing Managers' Index (PMI) for December, a good guide to overall private sector growth, slipped to 51.1, the lowest in more than four years, from 52.7 in November.

Composite gauges for output expectations and new orders were the worst since late 2014.

Data Friday showed the housing market had its worst 12 months since 2013 a year ago, consumers remained reticent about borrowing and a gauge of services, the largest part of the economy, stayed sluggish.

There was a drop in backlogs of work for the third month running, the longest period of decline since the summer of 2016.The survey points to weakest confidence since the immediate aftermath of the Brexit vote, Markit said.Firms reported headwinds from political uncertainty and downbeat projections for 2019 from clients.Survey respondents said tight labor conditions made it hard to recruit skilled staff; the increase in staffing levels was limited, and efforts to cut costs led to softer employment growth in the industry.An index of prices charged accelerated to the highest rate of inflation since June, mainly due to an increase in staff costs.

As a result, manufacturing companies have curtailed their expectations for output growth in 2019, with business optimism easing to its lowest for nearly three years. The pace of manufacturing job creation also moderated in December, partly reflecting a drop in business optimism to its weakest since February 2016.

The rate of new business growth eased for the third successive month in December, with service providers registering the slowest increase in new orders since October 2017. The rate of increase was the second-strongest since the survey began in 1992, beaten only by the expansion seen in May 2018.

Mrs May is also seeking to win fresh assurances from the European Union over the terms of her agreement, which is set to be voted on by MPs (BSE: MPSLTD.BO - news) within the next three weeks.

November and December marked the weakest two months for morale among services firms since March 2009, around the low point of Britain's last recession.

Where a rise in input prices was reported, survey respondents mainly cited greater steel costs.

Growth of purchasing activity rebounded slightly from the 11 month low seen during November. As policymakers raised rates in December for the fourth time in 2018, they pencilled in just two moves for 2019, according to the median projection of Fed governors and district-bank presidents.

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