According to the latest IHS Markit and Chartered Institute for Procurement and Supply (CIPS) survey, the UK economy is heading for a contraction when the quarterly data is released by the Office for National Statistics. The Markit CIP survey is predicting that the economy will shrink by 0.1% after growth in the dominant service sector grinds to a virtual halt.
If the predictions are correct (and they are usually very reliable), the contraction will be the first suffered by the UK economy since Q4 2012, ending 26 successive quarters of growth.
Unsurprisingly, uncertainty over the Brexit process is being blamed for the slowdown in the service sector as businesses try to determine what the future may hold in the absence of any certainty. Nobody knows if the UK will leave the EU with a deal (and therefore with a transitional period), crash out with no deal where trading conditions change, literally, overnight or if the UK may contrive to cancel the whole madness and remain in the EU.
The Markit CIPS data was for the month of June and showed that manufacturing and construction had contracted whilst the service sector output stood still.
There is little to suggest that Q3 will produce a significant upswing in economic activity leading to the risk of a technical recession being on-going should the UK crash out of the EU in a chaotic fashion at the end of October. Growth in Q1 benefitted from stockpiling of goods ahead of the anticipated, original Brexit date at the end of March – this impetus to the economy is now dropping out of the data.
Commenting on the report, Chris Williamson, Markit’s chief economist said: “Brexit-related uncertainty has increasingly exacerbated the impact of a broader global economic slowdown. Risks also remain skewed to the downside as sentiment about the year ahead is worryingly subdued, suggesting the third quarter could see businesses continue to struggle”.