The UK economy came close to flatlining last month as Brexit uncertainty intensified and the global economy weakened, with employment levels falling at the fastest pace in almost nine years.
According to the latest snapshot of Britain’s services sector – which accounts for 80% of economic growth – businesses have begun to delay hiring staff against a backdrop of subdued demand and concerns about the economic outlook as the scheduled date of the UK’s departure from the EU draws nearer.
IHS Markit and the Chartered Institute of Procurement and Supply said that political uncertainty had encouraged delays to corporate spending in the largest sector of the UK economy, which includes financial firms, hotels, shops and restaurants.
Business optimism about the year ahead plunged to the lowest ever recorded by the survey of about 650 UK services firms, barring the height of the global financial crisis and the period immediately after the Brexit vote in July 2016.
The IHS Markit/Cips services purchasing managers’ index (PMI) registered 51.3 in February, up from a two-and-a-half-year low of 50.1 a month earlier, beating a gloomier forecast made by City economists for a reading of 49.9.
Although the reading was above the 50 mark separating growth from contraction, analysts warned the expansion in service sector activity was only marginal, with the biggest driver of UK growth heading for its weakest quarter since 2012.
Duncan Brock, the group director at Cips, said: “Once again this month, the lifeblood of the sector continued to leak away with Brexit indecision striking another blow to new orders and employment in February.
“Any hoped-for progress next month looks like it will be equally stifled, as services activity heads for its weakest quarter since late 2012.”
Theresa May’s further potential defeat over her Brexit plan amid the mounting political chaos in Westminster sapped companies’ confidence, with consequences for jobs and firms’ hiring plans.
Official figures have previously suggested that Brexit has done little to dent hiring, with employment rising to record highs last year and unemployment still at the lowest levels since the mid-1970s.
Economists believe companies have put on hold their capital investment – such as in new plant machinery or efficiency-boosting technology – to hire workers instead amid the political uncertainty.
The latest snapshot from the PMI, however, suggests that jobs growth has kicked into reverse. Private sector employment across the three biggest sectors of the economy – services, manufacturing and construction – fell at the fastest rate since September 2012. Firms said that a lack of new work to replace completed projects had contributed to more cautious recruitment strategies.
Thomas Pugh, a UK economist at the consultancy Capital Economics, said: “As long as Brexit uncertainty continues growth is unlikely to accelerate, but if a Brexit deal is agreed soon, growth will surely rise later this year.”
