U.K. Output Weakest Since Just After Brexit Vote, PMI Shows

(Bloomberg) --

The U.K. economy’s performance was the worst since July 2016 this month as uncertainty from Brexit and the snap election weighed on sentiment.

IHS Markit’s composite Purchasing Managers Index slipped to 48.5, with readings for both manufacturing and services falling further below the 50 mark that separates expansion from contraction. The figures are a new flash estimate, produced a week earlier than normal, based on 85% of responses.

The pound declined after the report, dropping 0.3% to $1.2877 as of 9:32 a.m. London time.

Britain narrowly dodged a recession in the third quarter as factories stockpiled ahead of the Oct. 31 deadline, albeit less so than before the previous exit date. The process has now been extended again, and firms are clamping down on investment as they await a clearer picture of the U.K.’s future relationship with the European Union. That won’t take shape until after the Dec. 12 election.

“The weak survey data puts the economy on course for a 0.2% drop in GDP in the fourth quarter,” said Chris Williamson, chief business economist at IHS Markit. It “also pushes the PMI further into territory that would normally be associated with the Bank of England adding more stimulus to the economy.”

Key Insights

• Private sector output has dropped in two of the past three months
• New orders fell at the fastest pace since July 2016
• Companies reduced staff for a third month
• Input cost inflation moderated
• The flash manufacturing PMI came in at 48.3, while services posted 48.6
• Markit will publish final PMI readings for this month at the start of December

--With assistance from Harumi Ichikura.

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Lucy Meakin, David Goodman

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