UK economy falls behind strong eurozone recovery

Britain’s economy is ending 2017 lagging the eurozone’s strong recovery as the effects of last year’s Brexit vote weigh on shoppers and on businesses, writes William Schomberg.

The dominant services sector lost some momentum in November while prices charged by companies rose at their fastest pace in nearly 10 years, potentially adding to the country’s inflation problem, a closely watched survey showed.

Another report showed shoppers spent more on the rising cost of food, while car sales fell for the eighth month in a row in November.

Britain’s economy has slowed sharply this year as the pound’s plunge following the referendum pushed up inflation and hit households at a time when wages are growing only sluggishly.

UK companies have meanwhile slowed investment as they wait to see what leaving the EU means for them. UK Prime Minister Theresa May failed to clinch a deal on Monday to open talks on post-Brexit free trade with the EU after a tentative deal with the government to keep EU rules in the North angered her political allies, the DUP.

The monthly IHS Markit-CIPS services Purchasing Managers’ Index, covering businesses from hotels to hairdressers, fell in November. Taken along with a pickup for the smaller manufacturing and construction sectors, November’s PMIs suggested the economy was likely to see robust quarterly growth of about 0.45% in late 2017, IHS Markit said — faster than earlier in the year. But businesses were downbeat about the prospects for the economy.

“The eurozone is going great guns at the moment and it will almost certainly outpace the UK this year and next,” Investec economist Philip Shaw said.

Reuters

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