ITEM Club instant reaction - PMI services

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Nida Ali, economic advisor to the EY ITEM Club, comments on today’s PMI services figures:

  • A dismal outturn for the services PMI points to underlying weakness in the sector
  • The decline in business confidence is a genuine cause for concern
  • Today’s release supports our view that Q4 GDP growth will be flat at best

“This is a dismal outturn for the services PMI, with the activity index barely in expansion territory. A fall in business volumes and declining backlogs of work are signs of underlying weakness and suggest a flat-lining of the services sector in the coming months. The sector has held up reasonably well so far, but tough economic conditions finally seem to be taking a toll on activity.
“The decline in business confidence is also a genuine cause for concern. Deterioration in sentiment can rapidly affect activity as it leads companies to put investment and recruitment plans on ice. Business investment in the UK is still well below its pre-crisis peak and despite all the fundamentals being in place, a lack of corporate confidence could postpone its recovery further.
“These results are particularly discouraging because the economy has been heavily reliant on services to offset the poor performance of manufacturing. The only plus point is that the recent results from the retail sector – which isn’t covered by the PMI – have been better. However, this is unlikely to prevent Q4 GDP growth being, at best, flat and maybe even slightly negative.”