Sterling fell against the euro and the dollar yesterday as a key survey suggested the UK’s services industries, which includes its giant finance industry, is coming close to stagnating because of the uncertainty of Brexit.
UK firms in the services sector reported job cuts for the first time in six years and falling new orders, according to the IHS Markit-CIPS Purchasing Managers’ Index. The headline reading fell back to 50.1 in January, where any reading below the no-change 50 level means the sector is contracting. Sterling traded lower at 88.17p against the euro and fell sharply against the dollar to $1.293.
“The pound has come crashing down today, as the services sector wrapped up a trio of hugely disappointing economic PMI surveys for January,” said Joshua Mahony, senior market analyst at online broker IG, as earlier surveys showed manufacturers stockpiled and construction jobs growth falling.
“With services output growth falling to a two-and-a-half year low, it is clear that with less than two months until the deadline, firms are now starting to believe that a no-deal Brexit is a very real possibility.”
The weak pound boosted the Ftse-100, while the Iseq rose 1.5%. The UK’s economy had defied forecasts from some economists that it would go into recession after the 2016 referendum vote to leave the EU.
However, growth slowed sharply in late 2018 as worries mounted about an abrupt, no-deal Brexit.
The services survey suggested the UK’s economy is flat-lining after losing momentum late last year. New orders fell for only the second time since the financial crisis, while employers cut jobs for the first time since late 2012 — around the last time the UK flirted with recession.
New export orders contracted at the fastest pace since records for this part of the PMI began in September 2014. “The risk is activity softens further — firms will become increasingly risk-averse and implement contingency Brexit planning,” said ING economist James Smith. The figures are also likely to worry the Bank of England ahead of its interest-rate decision and forecasts for the UK economy tomorrow. The survey adds to other signs that Brexit, due on March 29 is taking its toll on businesses and consumers.
UK prime minister Theresa May is under pressure from her Conservative Party and wants to reopen her withdrawal agreement with the EU to replace the Irish border deal, something the Irish Government and the EU have rejected.
Investors are urging the UK government to ensure an orderly exit from the club the UK joined in 1973. Earlier this week, a Deloitte survey of chief financial officers showed appetite to take on financial risk had fallen to its lowest level in nearly a decade due to fears of “the hardest of Brexits” and rising US protectionism.
In Ireland, production of manufacturers in the so-called modern sector, which includes the large number of multinationals based here, fell sharply in the last three months of the year, according to CSO figures. Production from the modern sector fell 3.5% between October and the end of December from the previous three months, and was down 11.5% from the same period in 2017.
Traditional sector production rose 8.3%.
- Additional reporting Reuters