Published: Sun, January 06, 2019
Markets | By Otis Pena

United Kingdom economy under pressure as Brexit deadline approaches

United Kingdom economy under pressure as Brexit deadline approaches

The U.S. service sector signaled a solid expansion in business activity in December 2018, although experiencing the slowest growth for three-month, according to data released by the IHS Markit on Friday.

The headline seasonally adjusted IHS Markit/CIPS UK Services PMI® Business Activity Index registered 51.2 in December, up only slightly from the 28-month low seen in November (50.4).

This was higher than the 50.4 recorded in November when it hit a 28-month low, and above the 50.7 reading economists were expecting.

Economists said GDP growth in the final quarter was now set to plunge to 0.1% from a rate of 0.6% in the third quarter, falling well short of the 0.3% expected by the Bank of England and the Treasury.

Irish manufacturing activity eased as the year drew to a close, with output, new orders and employment growth all slowing, according to the latest report on the sector. The same was true for new orders, where a marked expansion was recorded and extended the current sequence of growth to 37 months.

"(Clarity) on Brexit is needed urgently in order to prevent the economy sliding into contraction", said IHS Markit's chief economist, Chris Williamson.

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Services and Composite PMIs for the two largest euro zone economies, Germany and France, also declined in December, coming below all forecasts in a Reuters poll. The flash reading for December was 53.6.

Britain's powerhouse services sector saw business activity rise at one of the slowest rates for two-and-a-half years in December, while job creation also ground to a near halt as Brexit uncertainty weighed on firms.

"Worries reflect multiple headwinds from trade wars, Brexit, heightened political uncertainty, financial-market volatility and slower global economic growth", he said. Markets have priced out any increase in the next 12 months, even as BOE Mark Carney warned that a disorderly exit from the European Union may force the bank to raise rates to contain inflation. The final quarterly average of 2018 matched that seen in the third quarter at 54.7.

Where a rise in input prices was reported, survey respondents mainly cited greater steel costs.

Growth in world's second- largest economy is forecast to decelerate to 6.6% in 2018, the weakest pace in nearly three decades, and continue slowing this year and next. There were reports that lower prices for oil-related inputs had helped to moderate the overall rate of cost inflation in December. Factory gate prices rose at the softest rate in 2018. This was the first reduction since February 2016.

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