Do the weaker than expected PMI figures signal that UK services are on a cliff edge?
Dr Victoria Bateman, fellow in Economics at Gonville and Caius College, Cambridge, says YES.
While little weight can be placed on a single data point, and the purchasing managers index (PMI) is still in positive territory, we ignore the downward trend at our peril. Services account for four fifths of the UK economy, and are less internationally exposed than export-oriented manufacturing, meaning that they have less to gain from the post-Brexit collapse in the pound.
Consumption – which has long been propping up the British economy – also has relatively little to gain from the depreciation. After a year-long Brexit-fuelled barbeque of jingoism (and all of the shopping that goes with it), consumers are finally starting to feel the pinch.
Weaker growth is clearest in consumer-facing services like restaurants, hotels, hairdressers and cinemas. Worryingly, it is in this side of services, in life outside of the City of London, where Britain’s productivity gap is also particularly noticeable. And it’s where a sizeable chunk of the low-wage workforce – some of our most vulnerable workers – are to be found.
Jeremy Furniss, partner at international M&A firm Livingstone, says NO.
The latest PMI survey findings are of course disappointing, but reflective of the volatility across an otherwise vibrant market. Delve a little deeper and you soon find structural cause to remain optimistic about this vital UK sector.
Take the building services sector as a snapshot. In the past five years alone, research conducted by Livingstone shows that the UK’s share of this lucrative market has in fact grown by over £15bn. What’s more, despite all the talk of uncertainty surrounding Brexit and ongoing negotiations, M&A and investment activity has remained remarkably resilient across the board. The reason for this should be clear: the UK market for outsourced building services is a world-leader – and this could just be the start. The largely stable economy, combined with the weaker pound, have collectively piqued both international and domestic investor interest.
This is not, therefore, the beginning of the end, but a further opportunity for the UK to boost its position as the leading innovator on a global stage.