Services Sector shrinks for first time in eight years

The output from the UK’s services sector, which makes up around 80 per cent of the economy, has decreased in size for the first time in eight years as the prospect of a ‘no deal Brexit’ looms.

According to a respected survey, the services sector, which includes retail, banks, hotels and media businesses, recorded a drop of more than two points in output in July, pushing the survey results into negative territory for the first time since early 2010.

The results come days before the Office for National Statistics (ONS) publishes its first reading of UK gross domestic product (GDP) in the second quarter. Economists are expecting growth of 0.4 per cent in Q2 but the survey suggests that GDP has already been coming under pressure in the early part of Q3.

In fact, July’s reading of 94.73 marked the second consecutive monthly drop, falling from 96.85 in June, and this has pushed the index under the 95.00 point of contraction for the first time since February 2010.

Taken in conjunction with the manufacturing output reading, which although rising only represents around nine per cent of GDP, the results indicate economic output is at its lowest level in six years, which the survey’s authors attribute to “Brexit paralysis”.

A spokesman for the company that publishes the index said that uncertainty about Brexit and the increasing possibility of crashing out of the European Union without a transition deal is discouraging businesses from investing, which is in turn causing a drag on productivity.

However, despite the fall in output, the research found that firms are feeling positive about the outlook for the next three to six months, with an ‘optimism index’ rising slightly from 101.85 to 101.96.

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