Economy in 'stagnation' in run-up to Halloween Brexit deadline

5 November 2019, 09:15 | Updated: 5 November 2019, 11:02

New orders in the UK's dominant services sector fell at their fastest pace for six months in the run-up to the last Brexit deadline, according to the authors of a closely-watched survey.

The IHS Markit purchasing manager's index (PMI) suggested a slight uptick in overall activity in October compared to the previous month as firms prepared - for the second time this year - for the UK to leave the EU.

But the index showed a reading of 50 - stagnation - compared to 49.5 a month earlier. Any reading above 50 indicates growth.

Coupled with negative numbers for the manufacturing and construction sectors, the all-sector PMI came in below 50 for the third month in a row in October.

This is the first time that has happened since 2009.

The figures cover the first month of the final quarter of 2019 and are the first since the PMI surveys indicated the UK fell into recession in the three months to September following a contraction in output in the second quarter.

However, more comprehensive data has prompted economists to largely rule out a technical recession.

The first official reading of the UK economy in the third quarter is due out next week.

Pressures have included not only Brexit-related uncertainty but also the effect of the US-China trade war that has dented demand globally.

Commenting on the PMI findings, the chief business economist at IHS Market, Chris Williamson, said: "The October reading is historically consistent with GDP declining at a quarterly rate of 0.1%, similar to the rate of contraction of GDP signalled by the surveys in the third quarter.

"While official data are likely to have indicated more robust growth in the third quarter, the PMI warns that some of this strength reflects a pay-back from a steeper decline than signalled by the surveys in the second quarter, and that the underlying business trend remains one of stagnation at best."

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said of the report: "Markit's survey is best seen currently as a barometer of business confidence, not as a reliable guide to GDP growth."

But he agreed confidence continued to sag, despite Boris Johnson's new Brexit deal with Brussels, adding: "Optimism about the 12-month outlook for demand recovered only to a three-month high in October, while firms continued to cut headcounts, albeit only marginally.

"In addition, the drop in the new orders index to 49, from 49.3 in September, indicates that the near-term pipeline of work has continued to weaken."