UK service sector gets post-election bounce

Economy stagnates but business optimism hits 15-month high on promise of Brexit stability

                                

The UK’s service sector ended 2019 on a cautiously optimistic note, buoyed by a decisive general election result in December and the first increase in orders for four months.

The headline IHS Markit/CIPS UK Services PMI hit 50 in December, up from 49.3 the previous month. That puts the sector officially in stagnation, with figures above 50 indicating growth and figures below 50 representing contraction.

But the survey also reported business optimism at a 15-month high, with a number of respondents looking forward to a boost in business activity when the first stage of Brexit is resolved.

The resounding victory for Boris Johnson’s Conservatives in last month’s general election means the UK is on course to leave the European Union (EU) on January 31, which will be followed by a relatively stable 11-month transition period.

“It is notable that the forward-looking business expectations index is now the highest since September 2018 and comfortably above its 'flash' reading for December,” said Tim Moore, economics associate director at IHS Markit.

“The modest rebound in new work provides another signal that business conditions should begin to improve in the coming months, helped by a boost to business sentiment from greater Brexit clarity and a more predictable political landscape.”

The composite PMI, which combines the services and manufacturing output indexes, remained stable at 49.3 in December.

Some businesses and experts worry that Brexit stability may be short lived after Johnson ruled out asking for an extension to the transition period. They fear this may lead to another no-deal cliff edge if a new trade deal can’t be agreed with the EU by the end of 2020.

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