Market Research News

UK Service Sector Recovering After Post Brexit Drop

  • October 5, 2016
  • By Rajesh Namase
  • 0

The UK service sector took a sharp drop in activity following the Brexit vote for the UK to leave the EU. Concerns regarding Britain’s place in the EU free trade area had led to sharp drop in business activity after the June referendum. Both service and manufacturing sectors dropped rapidly in July.

However, once the dust had cleared and it became obvious that there would be no immediate catastrophe, the services sector became more optimistic and started picking up in August.

UK Service Sector

UK Service Sector Expanding

The Markit/CIPS services PMI (Purchase Managers’ Index) was 55.4 on Monday, the best for two years, and 52.6 Wednesday.  The latter is slightly down on August’s 52.9 although a level of 50 indicates expansion. So the UK service sector is still expanding rather than contracting.  This sector accounts for around two-thirds of the UK economy.

Another encouraging factor is that new business in the UK service sector increased at the fastest rate since February.  The creation of new jobs also increased. Fundamentally, the survey results are showing that, after the initial Brexit vote shock, the economy is moving in the right direction.  This is not only in the UK service sector, but also in manufacturing. Exports are thriving, largely, but not totally, due to the weakened pound.

UK Economy Expanding – But…

There appears to now to be no sign of a potential recession as was feared immediately following the June 23rd vote. The PMI figures are showing an expanding economy. The odds on a bank of England interest rate reduction this year are therefore unlikely. Nevertheless, there are still concerns. The official figures are showing a marked difference between the post- and pre-Brexit expansion rates.

Inflation is rising.  This is largely due to the large drop in the value of the pound. It is costing more to import, and household incomes are becoming worth increasingly less in real terms. UK service firms are reporting the fastest rates of input price inflation since 2013 when the inflation rate was 2.78% for the year to Feb 2013, and 0.72% for Jan – Feb 2013. Service providers are therefore increasing their prices.

Falling UK Growth Rate Predicted

Because of this, it is predicted that the growth rate will decelerate. Companies will be reluctant to invest and create new jobs with a potentially “hard” Brexit to come in March, and increasing inflation due to a weak pound and prices increasing due to the weak pound.

About Rajesh Namase

Rajesh Namase is a technology enthusiast, online marketer and SEO. He specializes in online marketing (SEO, SEM, Social Media, Content Markting, Email Marketing). Apart from that, he loves to blog about technology on TechLila.