UPDATE: MNI: UK January Services PMI Sinks To 2-1/2 Year Low

--CIPS/IHS Markit UK Services PMI 50.1 in Jan vs 51.2 in Dec

By Jai Lakhani

     LONDON (MNI) - The UK CIPS/IHS Markit services sector PMI fell by 1.1

points to 50.1 in January, the lowest reading in 30 months and the

second-weakest since December 2012. 

     The UK services sector experienced a decline in incoming new work for the

first time since July 2016. Driving this was subdued demand, meaning the sector

barely managed to stay above the 50 change/no-change mark. 

     Concern about the economic outlook manifested itself in staff recruitment.

The overall payroll numbers declined for the first time in just over six years. 

     January still marks the 28th consecutive month with a 'plus-50' reading,

but worryingly, the results appear to "indicate that the UK economy is at risk

of stalling or worse as escalating Brexit uncertainty coincides with a wider

slowdown in the global economy," said Chris Williamson, Chief Business Economist

at IHS Markit.  

     The data follows a moderation in the manufacturing and construction PMI,

and according to Chris Williamson, chief business economist at IHS Markit, is

consistent with the UK's weakest growth spell for six years. 

     Growth in Q4, for which a preliminary figure will be published next week,

is suggested by Williamson to come in at 0.1%, with further stagnation now

expected to start of 2019. 

     --BREXIT IMPACT

     "The survey results indicate that companies are becoming increasingly risk

averse and eager to reduce overheads in the face of weakened consumer demand and

rising political uncertainty. Such worries were in turn most commonly linked to

heightened Brexit uncertainty," said Williamson. 

     Unsurprisingly, Brexit-related concerns were impeding client demand in

January and delayed decision making on new projects -- an outcome also noted in

the construction PMI. Sector data appeared to show this weakness in transport &

communication and financial intermediation in particular who were the weakest

performing areas. 

     --NEW ORDERS DOWN

     New business volumes fell in January, albeit by a modest amount. Political

uncertainty again appeared to drive this, as caution regarding spending picked

up. 

     The slower pickup in orders offered firms the chance to alleviate pressures

on their operating capacity. Order backlogs, or unfinished orders, receded for

the fourth month running, as businesses faced less pressure on capacity and weak

new orders meaning completed projects did not get replaced. 

     --COSTS UP

     Putting this all together meant the drop in activity led to firms being

more cautious over hiring staff. Employment numbers reduced for the first time

since the end of 2012. This was primarily down to voluntary leavers not being

replaced. 

     Firms noted higher salary payments as a factor which drove input costs up

in January, despite not replacing temporary employees. Alongside this was

evidence of exchange rate depreciation facilitating the highest rate of input

cost inflation in three months. 

     However, as new work remained scarce, cost pass-through was minimal with

the slowest increase in average prices charged by service providers since

September 2018. 

     Williamson noted that companies are becoming risk averse and needing to

reduce overheads due to more than just Brexit uncertainty. "Such worries were in

turn most commonly linked to heightened Brexit anxiety, though wider global

political and economic factors were also seen to have taking their toll on

demand," he Williamson.

--MNI London Bureau; +44 203 865 3828; email: jai.lakhani@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

[TOPICS: MABDS$,M$B$$$,M$E$$$,MT$$$$]