Press release

4 Dec 2019 London, GB

Purchasing managers report UK services activity at eight-month low in November; appreciable upward revision from “flash” estimate

While less bad than the “flash” survey, the final services purchasing managers’ survey for November still brought disappointing news on the UK economy, as it showed activity at an eight-month low and contracting marginally anew after stabilisation in October.

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EY UK

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Related topics Advanced Manufacturing
  • While less bad than the “flash” survey, the final services purchasing managers’ survey for November still brought disappointing news on the UK economy, as it showed activity at an eight-month low and contracting marginally anew after stabilisation in October. Specifically, the services index fell back to 49.3 (revised up from the “flash” reading of 48.6) in November from 50.0 in October.

  • There were upward revisions in the final November PMI readings for both the services and manufacturing sectors (the manufacturing PMI was revised up to 48.9 from 48.3). This may well lead to the “flash” UK PMI’s being regarded with a fair degree of caution, at least until they become firmly established (November marked their introduction apart from a “one-off” in July 2016 after the June EU referendum).

  • Domestic political uncertainty was reported to have weighed down on business and consumer spending on services in November. Consumers were reported to have become more cautious in spending on big-ticket items.

  • Forward-looking elements of the November survey were largely weak and did little to inspire hopes that services activity is poised to pick up. New business contracted at the fastest rate for over three years, with demand from abroad at a record low (this series started in 2014). Brexit uncertainties were reported to have affected investment decisions by overseas clients. Additionally, declining backlogs of work will weigh on services activity.

  • Some better news saw confidence edge up to a four-month high in November amid hopes of reduced political and economic uncertainties – although it remained weak compared to long-term norms. Employment in the sector stabilised after contracting over the previous two months.

  • The purchasing managers’ surveys for November are largely gloomy pointing to contraction across the services, manufacturing and construction sectors. The composite output index for services and manufacturing fell to 49.3 in November (50.0 in October) thereby pointing to modest contraction; this was the joint lowest level (with September) since July 2016.

  • It needs to be noted that the purchasing managers’ surveys are prone to portray an overly gloomy picture at times of heightened uncertainties (and there is a number of uncertainties at the moment – domestic political ahead of the 12 December General Election, Brexit and the global economy).

  • Nevertheless, there now looks to be a real danger that the economy could stagnate in the fourth quarter. We had originally thought the economy could eke out GDP growth of 0.2% quarter-on-quarter in the fourth quarter, but this now looks on the optimistic side. Any growth in the economy in the fourth quarter is likely to be dependent on consumers – who have been the most resilient part of the economy – spending a decent amount over the critical Christmas period.

  • As will manufacturers and the construction sector, service companies will obviously be hoping that the uncertainties surrounding the economy are diminished by a decisive general election result and the UK leaving the EU with a “deal” on 31 January – and that this encourages businesses to step up their investment and consumers to become more willing to splash out on big-ticket durable goods.

Howard Archer, chief economic advisor to the EY ITEM Club, comments:

“The final purchasing managers survey pointed to the services sector contracting modestly anew in November and recording its worst performance for eight months. It had previously stabilised in October after contracting in September for the first time since March. Specifically, the services PMI fell back to 49.3 in November (revised up from the “flash” estimate of 48.6) after rising to 50.0 in October from 49.5 in September.

“November’s reading of 49.3 was below the 50.0 level that indicates flat growth; it was substantially below the services PMI lifetime (1996-2019) average of 54.9.

“Domestic political uncertainty was reported to have weighed down on business and consumer spending on services in November. Consumers were reported to have become more cautious in spending on big-ticket items.

Purchasing managers surveys point to economy struggling for any growth in fourth quarter but can overstate weakness at time of uncertainty 

“The purchasing managers point to contracting activity across the services, manufacturing and construction sectors in November.

“The composite output index for services and manufacturing fell to 49.3 in November (revised up from a “flash” reading of 48.6) from 50.0 in October); this was the joint lowest reading (with September) since July 2016 and points to modest contraction. Additionally, the construction PMI was down at 45.2 (although this was actually a 4-month high).

“Even allowing for the fact that the purchasing managers’ surveys are prone to portraying an overly gloomy picture at times of heightened uncertainties, there now looks to be a very real danger that the economy will stagnate in the fourth quarter. We had originally thought the economy could eke out GDP growth of 0.2% quarter-on-quarter in the fourth quarter, but this now looks pretty optimistic. Any growth in the economy in the fourth quarter is likely to be dependent on consumers – who have been the most resilient part of the economy – spending a decent amount over the critical Christmas period.”

Most elements of the services survey weak in November

“The detail of the November services survey was pretty concerning across the board, which is worrying for future activity.

“New business contracted in November for a third month running and at the sharpest rate for over three years. New business contracted at the fastest rate for over three years with demand from abroad at a record low (this series started in 2014). Brexit uncertainties were reported to have affected investment decisions by overseas clients. Additionally, declining backlogs of work will weigh on services activity.

“Meanwhile, backlogs of work declined sharply and for a 13th consecutive month.

“Confidence in the services sector remained very weak compared to long-term norms, but it did pick up modestly to a four-month high amid hopes that economic and political uncertainties will ease over the coming months.

“Employment in the sector stabilised in November after falling over the previous two months.

“Output prices rose modestly albeit at a slightly faster rate. Input prices rose at the slowest rate since August 2016.”