Monday 9 September 2019 1:01 am

Service sector confidence falls as UK nears recession

Optimism about the economy in the services sector fell sharply in August to levels not seen since 2013, according to a report from accountants BDO.

BDO’s services optimism index dropped 3.89 points in August to 95.49 per cent, only just above the 95 level that indicates a recessionary mindset has taken hold.

Read more: Business confidence declines in London but firms look to hire

The drop in services confidence has dragged to overall economic optimism index down by 3.21 points across the month.

The firm’s employment index also fell 0.26 points in August, marking eight consecutive months of decline, while its output index also fell 0.37 points, the third straight month of decline.

The closely watched services sector purchasing managers’ index (PMI) – which was released last week – dropped to 50.6 in August, down from 51.4 in July.

Any figure under 50 indicates a contraction. Coupled with lacklustre manufacturing and construction output, the UK’s all-sector PMI dropped to 49.7 in August – falling below the predicted 50.5.

The dip in confidence was primarily due to “concerns about the impact of domestic political uncertainty on client decision-making”.

Peter Hemington, partner at BDO, said: “This month’s dramatic fall in confidence is a very worrying event.

Pessimistic companies don’t invest or hire, which is how recessions start. The reason for this has to be that UK businesses have suddenly woken up to the fact that a no deal Brexit is a real possibility.

Read more:Is the UK economy already in a recession?

“This reminds me very much of the aftermath of the 2010 election, when there was a sudden realisation that austerity wasn’t going to be pretty. Sentiment collapsed as a result, and this was the precursor to a long period of very low growth that followed.

“Let’s hope that we can avoid a no deal Brexit, otherwise the next couple of years could be very uncomfortable.

Last week investment banking giant Goldman Sachs hiked its forecasts for a no-deal Brexit.

The bank said Prime Minister Boris Johnson’s plans for a prolonged suspension of parliament had led it to up its forecasts of a no-deal Brexit from 20 per cent to 25 per cent.