U.K. Services Weaken to Three-Month Low on Brexit Worries

(Bloomberg) -- The U.K. services sector grew at a slower pace than forecast in July as the economy kicked off the third quarter on a “disappointing” note.

IHS Markit said Friday its services Purchasing Managers Index slid to a three-month low of 53.5, down from 55.1 in June and less than the 54.7 forecast by economists. Companies said Brexit may be holding back projects, while the World Cup and the hot weather reduced consumer footfall.

The report follows the Bank of England’s decision Thursday to boost interest rates to 0.75 percent. While Governor Mark Carney said that growth was likely to hold up in the third quarter, Markit’s survey suggests expansion may hit a soft patch.

“The service sector moved back into the slow lane in July,” said Tim Moore, Associate Director at IHS Markit. “Service providers commented that Brexit uncertainty had held back new project wins, reflecting risk aversion and a wait-and-see approach to investment.”

The report also showed that cost pressures in the services sector, which makes up the vast majority of the U.K. economy, had eased. The rate of job creation fell to the weakest since August 2016.

“The combination of slower output growth and softer price pressures during July will reinforce expectations that any further Bank of England rate rises will be both gradual and limited,” Moore said.

A similar gauge for the manufacturing sector, released Wednesday, also fell more than economists forecast last month, although Markit’s construction index unexpectedly jumped.

--With assistance from Harumi Ichikura.

To contact the reporter on this story: David Goodman in London at dgoodman28@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Brian Swint

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