Brexit fears hurt service sector and dent car sales
Services companies suffered their seventh monthly decline in new orders this year, as Brexit uncertainty continued to take its toll on business and consumer confidence at home and abroad.
Rising import prices also put a squeeze on firms’ profitability, prompting many to lay off workers, some of them through compulsory redundancies.
Activity across the sector was stagnant with the IHS Markit Cips purchasing managers’ index (PMI) rising slightly to 50.0 last month from September’s 49.5. A figure above 50 indicates growth.
The modest increase from September reflected reports from some firms of optimism about a resolution to the wrangling over Brexit in the new year following the election.
But with the manufacturing and construction sectors in recession, the lack of growth in the services sector meant the economy was suffering its worst period since the 2008 financial crash, said IHS Markit chief business economist Chris Williamson.
“The UK PMI surveys collectively indicated a further overall decline in private sector output in October. Contractions have now been recorded in four of the past five months, marking the worst spell since 2009 during the global financial crisis,” he said.
The seasonally adjusted IHS Markit/CIPS all-sector output index rose from 48.8 in September to 49.5 in October, signalling a weaker rate of contraction, but the volume of new business fell at a pace similar to that in September, the survey found.
Williamson said the October figure was historically consistent with GDP declining at a quarterly rate of 0.1%, similar to the pace of contraction in GDP signalled by the surveys in the third quarter.
“While official data may indicate more robust growth in the third quarter, the PMI warns that some of this could merely reflect a payback 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,” he added.
Brexit uncertainty also continued to hit car sales. The Society of Motor Manufacturers and Traders reported that sales fell by 10,348 last month to 143,251, compared with 153,599 in October 2018 to register a 6.7% slide.
The trade body said the decline was driven by a big drop in private purchases, suggesting consumers are nervous about making major purchases.
The SMMT blamed “a tough environment for businesses and consumers as economic and political uncertainty continued to impact confidence”.
So far this year, the new car market is down 2.9% compared with the first 10 months of 2018.
Mike Hawes, the SMMT chief executive, says the market is suffering from waning confidence, though there was some support from customers who wanted to buy environmentally friendly vehicles. Sales of battery electric vehicles rose 236% year on year in September, and were up by 151.8% in October.
“The growth in alternatively fuelled cars is very welcome, showing increasing buyer appetite for these new technologies,” he said.
“The overall market remains tough, however, with October now the year’s eighth month of decline and in need of an injection of confidence.”