Election gamble drove 'uncertainty' in economy

The UK economy is “losing momentum”, according to a closely-watched survey of businesses which found growing uncertainty since Theresa May’s election gamble backfired.

The Markit/CIPS purchasing managers’ index (PMI) for the service sector showed business expectations at their lowest level since the month after the Brexit vote last year.
Authors of the report pointed to a shift in mood after the General Election when the Prime Minister lost her bid to grow her parliamentary majority – forcing her into a deal with Northern Ireland’s DUP to prop up a minority government.
The study showed growth across the dominant service sector as a whole fell to a four-month low in June as the country also started negotiations on the UK’s divorce from the EU.

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Taking the findings of its earlier readings for manufacturing and construction into account, Markit said it believed the UK economy will have grown by 0.4% in the second quarter of the year.
While that would represent a pick-up in output on the 0.2% growth measured during the first three months of the year, its chief business economist Chris Williamson said: “A slowing in services sector growth completes a triple-whammy of disappointing PMI survey readings.”
He added: “It’s clear the economy heads into the third quarter losing momentum.
“The overall picture is one of business spending, investment and exports failing to provide sufficient impetus to fully offset the consumer slowdown.”

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Consumer spending has eased as a result of growing inflation and falling wage growth. Prices for many goods have been going up in line with the increased cost of imported goods – a consequence of the pound’s post-Brexit vote weakness.

It was hoped that exporters would benefit from being more competitive abroad – boosted by sterling’s collapse – but higher costs are said to have taken a toll.
The PMI readings will complicate the arguments among a growing number of Bank of England policymakers who are favouring a rise in interest rates to help combat the inflationary pressure in the economy.

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The Bank’s monetary policy committee has maintained Bank rate at a record low of 0.25% since last August to help keep credit flowing.
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But it has since moved to crack down on evidence of excessive lending as consumer borrowing shows little sign of easing – also forcing banks to demonstrate they have enough protections in place to avoid them becoming overstretched.
Howard Archer, chief economic advisor to EY ITEM Club, said: “(The) weakened trio of June purchasing managers’ surveys support the case for the Bank of England holding off from any near-term interest rate hike.
“This is reinforced by the slowdown in prices charged by services companies.”

Source: SKY

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