Newsletter
Housekeeping, one of service section works in decline - Image:REUTERS
Housekeeping, one of service section works in decline - Image:REUTERS

UK Service Sector Reducing in Size for First Time in 8 Years

by -
Housekeeping, one of service section works in decline - Image:REUTERS

The United Kingdom’s services sector is decreasing in size for the first time in eight years, says research.

As a no-deal Brexit rapidly approaches, this is the first time the services sector has shrunk since 2010.

Going Down

The services sector in the U.K. is undergoing its first shrinking trend since 2010, according to a BDO report. The report examined the output of services, which includes hotels, banks, retail and media.

The services sector comprises over three quarters of the U.K. economy.  This contraction represents a “particularly gloomy outlook” for the economy, according to the report.  The services output index showed a drooping to 94.7 in July.  In June, that figure had been 96.9.  Anything under 95 is interpreted as a sector contraction.

Other Sectors

The same report indicated that the manufacturing sector did better than services last month.  Manufacturing comprises about ten percent of the U.K. economy.  It recorded a 100.1 on the BDO index.  That said, it was still slightly lower than the June figure, which had been 100.8. One third of manufacturing businesses reported a rise in orders during 2018’s second quarter.

This data was compiled by the Centre for Economic and Business Research for the report commissioned by BDO.  The data utilized aggregated the outcomes of a number of wide-reaching and well-reputed business surveys.   It indicated that business output in the United Kingdom has reached a six year low.  Moreover, it is also headed toward a contracting trend.

Manufacturing and services combined saw an output drop to 95.34 in July.  In June, it had been 97.29.  In July 2017, the figure had been 100.96.

Rising Interest Rates

This report was published closely on the heels of the Bank of England’s decision to increase interest rates to 0.75 percent. This represented a quarter of a point rise.  This has all occurred at a time in which the Brexit negotiations have shown no indications of approaching a resolution.

International Trade Secretary Liam Fox said that the United Kingdom was more than likely to smash its way out of the European  Union in March, without having established a trade deal. This type of hard Brexit would require the U.K. to deal with other nations, including E.U. members, under World Trade Organization terms, currently has a “60-40” likelihood, said Fox.

Note: The opinions expressed in this article are the author's own and do not necessarily reflect the view of Alvexo on the matter.