U.K. Economy Seen Stagnating in April as Services Eek Out Growth

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The U.K.'s dominant services industry was subdued in April, even as the sector returned to growth.

IHS Markit said its Purchasing Managers Index for the sector rose to 50.4 last month, from a 32-month low of 48.9 in March, crossing the key 50 level that signifies expansion. Still, the measure was below the average in 2018, and, taken together with similar surveys for manufacturing and construction, indicates the economy is struggling to grow, Markit said.

“The resulting rise in business activity signalled collectively by April's PMI surveys was only marginal, suggesting the economy remained more or less stalled at the start of the second quarter,” said Chris Williamson, chief business economist at Markit.

The report follows a first quarter that saw the lowest average PMI reading since 2012, indicating a flat lining economy, Markit said. That contrasts with the view of the Bank of England, which yesterday boosted its own forecasts for the first three months of 2019 to 0.5 percent.

In delivering the new predictions, Governor Mark Carney noted that private surveys, such as the PMI reports, have tended to be overly pessimistic, and said policy makers need to look through some data at a time of “highly elevated uncertainty.”

Key Takeaways

• A measure of new work in the sector fell for a fourth straight month, while firms turned more cautious on hiring, Markit said
• Companies also reported that Brexit uncertainty and economic concerns were encouraging clients to delay spending decisions
• Where businesses did see new export work it was often to U.S., rather than European, clients
• “Both GDP and labour market numbers could therefore disappoint in coming months, as the weakness of the survey data feeds through to official data,” Williamson said
• Still, the data also pointed to more optimism about the year ahead, with respondents signaling the highest degree of positive sentiment since September 2018. That was likely linked more favorable prospects linked to the reduced threat of a no-deal Brexit, Markit said

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• The report was the first for the services industry since the government secured a delay to Brexit until Oct. 31
• Similar indexes for the manufacturing and construction sectors earlier this week came in at 53.1 and 50.5 respectively
• Carney said yesterday that firms don't expect Brexit to be resolved for some time and “in that environment it's difficult to make those longer-term investment decisions”

To contact the reporter on this story: David Goodman in London at dgoodman28@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Lucy Meakin

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