UK’s economy seen stagnating in January

February 11, 2019

By Orbex

IHS Markit released its monthly Purchase Managers’ Index report covering the manufacturing, construction and services sector for the month of January. Data showed a broad-based decline in the pace of economic activity in the said sectors for the given month.

IHS Markit’s Chief Economist Chris Williamson said that the Brexit uncertainty was to be blamed alongside a broader slowdown in the global economy including the Eurozone.

The data comes as the UK’s quarterly economic growth was confirmed at 0.6% in the three months to September 2018 which marked an annual growth rate of 1.5% on a year over year basis in the third quarter of the year.

Manufacturing sector sees declines in new orders

Manufacturing sector started the year on a subdued note as trends in output, and new orders were declining, dragging employment lower as well. The employment index fell for the second time in the past two-and-a-half-year period.

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The manufacturing PMI fell to a three month low of 52.8 in January, down from December’s reading of 54.2. This was the second weakest reading in manufacturing since July 2016.

Production volumes registered the weakest pace of growth, but output was seen rising in the consumer goods sector. This was offset by the weaker pace expansion in the intermediate goods sector.

Construction output falls in January

The UK’s construction activity in January weakened, marking the slowest pace of increase in more than ten months. The data pointed to a loss of momentum in the sector.

New orders were seen rising marginally at the start of the year contributing in turn to the slowest pace of expansion in the employment figures in over two and a half years.

The IHS Markit’s construction activity was seen falling to 50.6 in January from 52.8 in December. The index remained above the 50-level, but January’s expansion was one of the slowest paces of increases in recent times.

All three categories of the construction output were seen to be weaker compared to December. Residential work activity was the most robust performing sector while commercial work was the weakest.

New business activity in the construction sector fell to an eight-month low in January.

Services PMI falls as business activity stagnates

The services sector activity for January showed a decline in the momentum for the sector. The services sector activity came in at 50.1 in January which was down from 51.2 in December. The data was also weaker than the median estimates.

The declines came due to subdued demand conditions which led to lower business activity at the start of the year. Firms in the services sector overwhelmingly blamed the slowdown in business activity due to political uncertainty.

New business activity fell for the first time in two and a half years in January. The backlog of work orders also fell for the fourth consecutive month in January underlining the easing pressure on business capacity.

Hiring also took a hit in the services sector as it showed a marginal reduction in the employment figures for the first time since the end of 2012.

UK fourth-quarter GDP figures will be released on Monday this week. Following the 0.6% expansion in the third quarter, the fourth quarter economic activity is expected to slow to a pace of 0.2%. This comes as the UK continues to negotiate the Brexit deal with the EU.

With the March 29th deadline looming there hasn’t been any progress on the Brexit negotiations which has sparked concerns among the business communities in the UK and raising the prospects that the UK could seek an extension to Article 50.

By Orbex