2 weeks ago
Economic Indicators

Brexit Concerns Stifle U.K. Economy, Service Sector Optimism Hits Historic Low

Investing.com - Heightened uncertainty over Britain’s impending departure from the European Union kept the British economy close to stagnation, despite

Investing.com - Heightened uncertainty over Britain’s impending departure from the European Union kept the British economy close to stagnation, despite a slight uptick in services sector business activity, according to a report released on Tuesday.

Brexit concerns led employment in the service sector to fall at the fastest pace in seven years, IHS Markit said. Business confidence slumped to historically low levels, while new work levels also dropped slightly.

“The latest PMI surveys indicate that the U.K. economy remained close to stagnation in February, despite a flurry of activity in many sectors ahead of the U.K.’s scheduled departure from the EU,” IHS Markit chief economist Chris Williamson said in the report.

Williamson indicated that the three surveys -covering the services, manufacturing and construction sectors - suggest growth of 0.1% for the British economy in the first quarter.

Research firm IHS Markit said its services purchasing managers’ index rose to 51.3 in February, but “Brexit concerns dominate the list of reasons cited by companies for deteriorating business performance by a wide margin.”

Even though the U.K. manufacturing sector has been supported by stockpiling in anticipation of a disorderly Brexit, activity hit a four-month low in February.

The reluctance to begin major new projects has also weighed heavily on the U.K.’s construction sector, where activity fell for the first time in 11 months.

Uncertainty over Brexit has risen to new peaks in recent weeks as various factions of lawmakers dig in to pursue their own desired outcome as the clock runs down to a March 29 deadline. Prime Minister Theresa May had said she’ll let that date be pushed back, if necessary, to find an outcome that can command a majority in parliament. However, European leaders have expressed reluctance at extending the deadline, unless the U.K. is prepared to shift its position materially.

“Business optimism about the year ahead has consequently sunk to the lowest ever recorded by the survey with the exceptions of the height of the global financial crisis and July 2016,” Williamson said.