UK services growth slumps as Brexit hurts business optimism

Bloomberg

The UK economy kicked off the fourth quarter on a disappointing note as Brexit concerns pushed growth in services to a seven-month low.
IHS Markit’s index for the sector fell more than economists expected last month, recording the lowest reading since March when the nation was battered with bad weather. New business growth and optimism over the outlook were the weakest since July 2016 — the immediate aftermath of the Brexit vote. The pound was little changed after the data, trading at $1.2992 as of 9:42 am London time.
A similar report for the manufacturing sector last week also showed a pronounced slowdown. The gauges are consistent with quarterly growth of around 0.2 percent, setting the scene for the expansion to “weaken sharply,” at the end of 2018, HIS Markit said.
The reading comes as the UK remains deadlocked in talks with the European Union over its departure from the bloc. Bank of England Governor Mark Carney said last week that businesses were more wary than consumers about Brexit and were “understandably” delaying investment as a result.
The slowdown also aligns with weakness in other major economies though, as trade disputes erode confidence. The euro-zone expansion cooled last quarter, with Italy stagnating, and Chinese manufacturing is on the verge of a contraction. Economists expect US growth to moderate in 2019.
The “numbers bring mounting evidence that Brexit worries are taking an increasing toll,” said Chris Williamson, chief business economist at IHS Markit. “The economy is facing other headwinds, including a broader global slowdown, trade wars, heightened geopolitical uncertainty and tightening financial-market conditions.”
Markit’s index for the services sector fell to 52.2 in October, down from 53.9 the previous month and below the 53.3 forecast by economists.
Despite the slowing economy, the BOE has its eye on more interest-rate increases. It has hiked twice since November last year and says more moves are necessary in coming years to contain inflation, though Carney stressed that everything depends on the outcome of Brexit talks.

UK deal prospects plummet amid Brexit worry, says EY
Bloomberg

Uncertainty surrounding Brexit has driven expectations among executives for new merger deals in the UK to a four-year low, accord-ing to a poll by advisory services firm EY.
Only 45 percent of executives expect to actively pursue acquisitions in the next year, a drop of 20 percentage points since July, according to an
EY survey that took in 156 firms in the UK The research for EY’s Capital Confidence Barometer is part of a wider poll of 2,600 senior executives from 45 countries, the con-sultancy said in comments released on Monday.
Confidence in the UK economy slipped five percentage points to 63 percent, though 86 percent of UK respondents said the global economy was improving, EY said.
“Lower domestic growth, combined with rising UK wage costs, Brexit-related disruption and the impact of a weaker pound on import prices are all front of mind for UK business leaders,” EY’s Managing Partner for transaction advisory services Steve Ivermee said. “Longer term, the need to get ahead of technological disruption and seek growth from new markets is likely to sustain M&A activity.”
The gloomy outlook comes after US companies more than doubled the amount they’ve agreed to spend on UK targets this year compared to the same period a year earlier, according to data compiled by Bloomberg.