On Tuesday, surveys showed that the economy of Britain is dropping further behind a fast recovering euro zone as businesses are becoming concerned about Brexit and the consumers feel the pressure of rising inflation and the weak pound.
According to the IHS Markit/CIPS services Purchasing Managers’ Index, while several manufacturers are benefiting from the increasing demand in Europe and beyond, the bigger services sector in the United Kingdom grew at its weakest pace in almost a year last August.
The fifth biggest economy of the world originally endured the shock of the Brexit vote in June 2016. But growth began to decelerate sharply in 2017 as there was a rise in inflation on the falling value of the pound, which affected households. IHS announced that the economy now looks on track to increase by 0.3% quarter on quarter in the period of July to September.
IHS Markit noted that this is a similarly slow rate as in the past three months, and momentum is slowly being lost.
Meanwhile, the growth in the euro zone is expected to at 0.6%, the same as that in the second quarter, revealed a similar survey that was also published on Thursday.
The weak outlook for Britain’s growth implies that the Bank of England, whose policymakers convene next week, is expected to maintain interest rates at a record low despite the rising inflation.
On Tuesday, separate figures published revealed that car sales declined for the fifth month in a row. More were spent by buyers in supermarkets and on the high street, but retailers said that was partly because of the increased cost of food.
Some economists perceived the data from Tuesday’s as a precursor of more gloom.
“Where would growth come from at this stage in Britain? There is erosion of real income because of the inflation numbers and the uncertainty means investment will not play a role until you get some clarity on what is going on (about Brexit),” stated group chief economist at UniCredit, Erik Nielsen.
But others predicted a small increase because official data have seemed a little stronger than the PMI surveys.
“We continue to think that growth will come in a bit stronger in the second half of this year,” Paul Hollingsworth, at Capital Economics, said. “Nonetheless, we still think that the Monetary Policy Committee will hold off until around the middle of next year, before raising interest rates.”
After the PMI was published, there was a decrease in the Sterling. But on Tuesday, the Sterling recovered its losses.