Services firms nervous about hiring staff before EU vote

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Businesses in Britain’s services sector enjoyed a rebound in growth last month but were more nervous about hiring new staff before this month’s EU referendum, according to a survey.

One-in-three firms said uncertainty around the 23 June vote was affecting their them, with new business gowing at the slowest pace for three-and-a half years. But 51% of firms in the sector, which spans hotels to insurers, said they had been unaffected by Brexit uncertainty.

The closely watched Markit/CIPS UK Services PMI report showed companies continued to hire in May but at the slowest pace for almost three years, reflecting the slowing of new work coming in. Some firms also said the new “national living wage” was influencing hiring.

The report’s headline measure of activity rose to 53.5 in May from a 38-month low of 52.3 in April. That was well above the 50 mark that separates expansion from contraction and also above a consensus forecast of 52.5 in a Reuters poll of economists.

Markit, which compiles the PMI reports, said growth in the services sector, the biggest part of the UK economy, was still weak. Taken with surveys from the smaller manufacturing and construction sectors published earlier this week, this pointed to a sharp slowdown in overall economic growth, said Markit’s chief economist Chris Williamson.

“The PMI surveys show that the pace of economic growth remained subdued in May, as Brexitworries exacerbated existing headwinds,” said Williamson.

The data so far suggested that economic growth has slowed to 0.2% in the second quarter from 0.4% in the first quarter, he said.

“Growth has collapsed in manufacturing and construction, leaving the economy dependent on the service sector to sustain the upturn, though even here the pace of expansion has remained frustratingly weak so far this year.”

Against the backdrop of tight opinion polls, some business surveys have suggested companies are deferring spending and hiring decisions until after the referendum on EU membership. The Bank of England has warned growth could slow in the April-to-June quarter as a result.

Some experts have suggested some of the slowdown in economic activity stems from factors beyond referendum jitters. The global outlook is still uncertain and Britain’s productivity growth remains sluggish.

Markit added an extra question to May’s polls of services, manufacturing and construction companies on whether the referendum uncertainty was disrupting their business.

Among the respondents to the services survey, 28% reported the referendum was having a detrimental impact, and a further 9% reported a strongly detrimental effect. The combined 37% share who reported some form of negative impact was the highest among the three UK PMI surveys, and slightly higher than the 35% shares registered for both manufacturers and construction companies.

Services firms' views on referendum effects

With the referendum clouding the outlook and inflation low, the Bank of England has held interest rates at a record low of 0.5%, where they have been for more than seven years. What happens next on interest rates depends on the referendum outcome, said James Smith, economist at ING bank.

“Should the UK vote to remain in the EU, we expect a rebound in activity, although this could take a few months to be reflected in the data given the time lag involved in reinstating delayed investment. If this is the case and the UK dataflow picks up by the fourth quarter, we think that the Bank of England could look to hike rates in early 2017,” he said.

“If the UK votes to leave the EU, then the potential for a near-term dip in activity means that the BoE may choose to cut rates to support business confidence.”

Powered by Guardian.co.ukThis article was written by Katie Allen, for theguardian.com on Friday 3rd June 2016 11.58 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010

 

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