The UK economy is “losing momentum”, according to a closely-watched survey of businesses which found growing uncertainty since Theresa May’s election gamble backfired.
The Markit/CIPS purchasing managers’ index (PMI) for the service sector showed business expectations at their lowest level since the month after the Brexit vote last year.
The report’s authors pointed to a shift in mood after the General Election when the Prime Minister lost her bid to grow her parliamentary majority – forcing her into a deal with Northern Ireland’s DUP to prop up a minority government.
The study showed growth across the dominant service sector as a whole fell to a four-month low in June as the country also started negotiations on the UK’s divorce from the EU.
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Taking the findings of its earlier readings for manufacturing and construction into account, Markit said it believed the UK economy will have grown by 0.4% in the second quarter of the year.
While that would represent a pick-up in output on the 0.2% growth measured during the first three months of the year, its chief business economist Chris Williamson said: “A slowing in services sector growth completes a triple-whammy ofdisappointing PMI survey readings.
He added: “It’s clear the economy heads into the third quarter losing momentum.
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“The overall picture is one of business spending, investment and exports failing to provide sufficient impetus to fully offset the consumer slowdown.”
Consumer spending has eased as a result of growing inflation and falling wage growth. Prices for many goods have been going up in line with the increased cost of imported goods – a consequence of the pound’s post-Brexit vote weakness.
It was hoped that exporters would benefit from being more competitive abroad – boosted by sterling’s collapse – but higher costs are said to have taken a toll.
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The PMI readings will complicate the arguments among a growing number of Bank of England policymakers who are favouring a rise in interest rates to help combat the inflationary pressure in the economy.
The Bank’s monetary policy committee has maintained Bank rate at a record low of 0.25% since last August to help keep credit flowing.
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But it has since moved to crack down on evidence of excessive lending as consumer borrowing shows little sign of easing – also forcing banks to demonstrate they have enough protections in place to avoid them becoming overstretched.
Howard Archer, chief economic advisor to EY ITEM Club, said: “(The) weakened trio of June purchasing managers’ surveys support the case for the Bank of England holding off from any near-term interest rate hike.
“This is reinforced by the slowdown in prices charged by services companies.”