Brexit Puts Brakes On Service Sector

6th December 2017.

The services sector lost momentum in November, while the prices for goods and services are rising at the fastest pace in nearly a decade.


According to a new survey by the Purchasing Managers’ Index (PMI), services sector growth has dropped during November. Despite the dip, the PMI insist the sector is still growing.

The services sector makes up 80 per cent of economic output in Britain and covers everything from restaurants, hotels and hairdressers to finance and banking. The monthly PMI surveys cover about 400 companies and topics such as business activity, new business, prices charged, input prices, employment and expectations for activity.

Uncertainty about the economic outlook, linked with Brexit worries and stretched budgets, acted as a brake on growth, the research found.

The jump in inflation since the Brexit vote has dampened consumer spending, which is affecting the services sector. People are spending more on essentials and less on indulgent items. A recent survey by the British Retail Consortium and KPMG found that last month’s Black Friday did little to alter this cautionary spending, with people spending majority of their budget on food.

The PMI survey also found a jump in the prices being charged by companies. This is the fastest rate since February 2008.

Businesses told the survey that they were having to battle higher expenses for energy, food, fuel, imported items and staff salaries. The fall in sterling since the Brexit vote has pushed up the price of imports, while the rise in the national living wage to £7.50 since April has affected the margins of smaller companies.

Chris Williamson, chief business economist at IHS Markit, which compiled the survey, said that price increases suggested that inflation would rise further.

“The survey was lower than economists had expected, but came after strong gains in the manufacturing and construction sectors”, he added.

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