Government promises business certainty from Repeal Bill as service sector slows amid Brexit jitters

 
Catherine Neilan
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The purchasing managers’ index (PMI) for the sector fell to 53.2 points in August, far worse than expected (Source: Getty)

The government has insisted the so-called Repeal Bill will give businesses much-needed clarity over Brexit, as it emerged that growth in the UK's service sector has slowed to an 11-month low.

The purchasing managers’ index (PMI) for the sector fell to 53.2 points in August, according to data giant IHS Markit. While analysts had expected a fall in the indicator, from 53.8 in July, the performance was significantly worse than the 53.5 reading expected.

It marked the weakest rise in business activity in the sector since September 2016, despite job creation continuing to strengthen, reaching a 19-month high.

The drop was widely interpreted as caused by uncertainty relating to Brexit and prompted further calls for the government to give businesses greater clarity. Just yesterday, the City of London Corporation told City A.M. the lack of guidance meant firms were having to "plan in the dark".

Miles Celic, chief executive of TheCityUK, said, “The relative slowdown in services demand could be explained by the ongoing uncertainty about what the UK’s future trading relationship with Europe is going to look like.

“With Brexit looming, the most urgent and immediate priority for firms in our industry and beyond is clarity on transitional arrangements. Many companies are already planning for the worst case ‘cliff edge’ scenario and activating their contingency plans to ensure they can provide continuity of service to customers and clients. Urgent clarity from the UK and the EU on time-bound and legally-binding transitional arrangements by the end of this year at the very latest will allow those firms to decelerate these plans – and for many smaller businesses to avoid activating their contingency plans. The sooner this happens, the better.”

David Cheetham, chief market analyst at XTB, added: "Despite being almost six months since Article 50 was triggered, there has been next to no progress made on Brexit terms, with both parties still seemingly unwilling to cede the necessary ground to begin the discussions in earnest. [PMI data] suggests that this could be beginning to weigh on the largest sector of the UK economy which has, up until now, been remarkably robust in the face of huge uncertainty."

Dennis de Jong, managing director at UFX.com, said the pace of growth in the sector was "worryingly slow".

“We’ve not seen such sluggish growth since last September and, although the services sector may not have the potential to dampen GDP as much as manufacturing could, the third quarter looks in trouble of coming in below expectations.

“Business conditions remain fragile and unpredictable. As inflationary pressures and slow wage growth intensify, consumer-facing businesses are likely to have felt a drastic slide in trade over the last few months and that spells tougher times ahead for the UK.

“The pound’s recent slump could see services fall again in September, at which point it could be anyone’s guess as to how low the pound will go. With Brexit talks stalling, this can only increase the pressure on David Davis and his team to start reporting some good news from the negotiating table.”

A spokesman for the Prime Minister said businesses' call for clarity would be answered with the EU Withdrawal Bill, which is to be debated on Thursday before being put to a vote next Monday.

The bill was "the single most important step in providing certainty for business", he said.

However, yesterday Labour confirmed its plans to whip MPs to vote against the Bill, describing it as a "power-grab".

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