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UK economy shows steady growth, Brexit concerns weigh on firms - PMI

Published 03/10/2018, 11:20
© Reuters. FILE PHOTO:  Customers are seen dining at Mr Fish in north London

By Andy Bruce

LONDON (Reuters) - Britain's economy appears to have kept up most of its steady growth in the July-September period, but uncertainty among companies remained high six months ahead of Brexit, a business survey showed on Wednesday.

The IHS Markit/CIPS UK Services Purchasing Managers' Index (PMI) slipped to 53.9 in September from 54.3 in August, a shade weaker than the median forecast of 54.0 in a Reuters poll of economists.

IHS Markit said Britain's economy was on course to grow at a quarterly rate of just under 0.4 percent in the three months to September -- the same as its average growth rate since the Brexit referendum of June 2016.

The world's fifth-largest economy suffered a slow start to the year, when the country was hit by unusually cold weather, but grew solidly in the second quarter, albeit fuelled mostly by consumer spending rather than trade or manufacturing.

Samuel Tombs, an economist at the consultancy Pantheon Macroeconomics, said Wednesday's figures put scant pressure on the Bank of England to raise interest rates again before the March 2019 Brexit deadline.

"The economy remains a long way from overheating and growth is likely slow further if Brexit talks aren't amicably concluded soon, given that firms are reporting ... that political uncertainty is weighing on budget setting and confidence," he said.

IHS Markit said business optimism ticked up in September, but Brexit worries had kept it "firmly anchored" at levels that would normally indicate an imminent slowdown.

Financial markets showed no reaction to the PMI, which was broadly as expected.

London and Brussels have yet to agree the terms of their March 29 divorce, meaning there is still a chance of a no-deal Brexit that most economists think would harm British businesses.

Other data have also pointed to steady economic growth for now, although last week official statisticians said British companies cut their investment in the second quarter of 2018.

© Reuters. FILE PHOTO:  Customers are seen dining at Mr Fish in north London

Wednesday's PMI also pointed to growing cost pressures faced by British companies linked to rising oil prices -- something BoE officials will be watching to see if this feeds through into broader inflation pressure.

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