China and EU woes dent confidence in services sector

The weaker performance of the Chinese economy is a worry for UK firms
The weaker performance of the Chinese economy is a worry for UK firms

Confidence among firms in Britain’s powerhouse services sector has reached its lowest point for three years amid fears of further turmoil in the markets, according to a report.

The CIPS/Markit purchasing managers’ index (PMI) said the 12-month outlook had plummeted, as firms feared an abrupt end to Chinese growth and the chance of Britain leaving the EU.

The forecast came as activity remained robust in January, with a reading of 55.6 compared to 55.5 in December - which was stronger than the long-run survey average. A reading above 50 signals growth.

The expansion was boosted by further rises in new business, which grew for the 37th consecutive month, while the rate of expansion rose to a six-month high.

But the volume of outstanding business contracted for only the second time in nearly three years.

However, the report said the rate of job creation remained strong, picking up from December’s five-month low.

The update on the services sector, which accounts for 75% of the UK economy, followed figures this week which show the construction sector slowed to its weakest level for nine months.

Meanwhile, UK factories enjoyed a better start to the year than expected as domestic demand boosted manufacturing output.

“Worries about a Chinese ‘hard landing’, financial market jitters, higher interest rates in the US, more austerity at home and the possibility of ‘Brexit’ and EU tensions have collectively pushed the business mood in the dominant service sector to its darkest for three years,” Chris Williamson, chief economist at Markit.

“The increased uncertainty about the outlook and persistent lack of inflationary pressures means the majority of policymakers will no doubt be more worried about avoiding another downturn than whether the economy needs higher interest rates.”