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Shares rebound after midweek slump but Brexit casts cloud over economy

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The UK manufacturing sector saw a small pickup in activity in November, but optimism about the future fell to new lows as Brexit uncertainties weighed. The IHS Markit CIPS purchasing managers’ index for November was 53.1, up from October’s two-year low of 51.1. The domestic market was the main source of new business, with output and new orders rising across the board in the UK.

However, the level of new export business dropped for the second month in a row, with respondents blaming Brexit for the poor showing. The PMI data chimed with the fourth quarter EEF/BDO Manufacturing Outlook Survey, also released on Monday, which showed that the outlook for manufacturers was deteriorating. It said that while the balance for output and orders, at was positive, there had been a deterioration in the strength of the readings throughout the year.

Consumer spending grew at its slowest pace in more than a year in November, as Black Friday sales failed to offset a lack of confidence among consumers as the prospect of Brexit looms. Retail spending was up 0.5 percent in November compared with the same month last year, down from a rise of 1.3 percent in October, according to data from the British Retail Consortium (BRC). “Weak consumer demand and falling confidence mean that retailers are in for a nerve-wracking run up to Christmas,” BRC chief executive Helen Dickinson said.

In a separate survey, Barclaycard said its measure of consumer spending rose by 3.3 percent last month, the slowest growth since March. On the upside, UK construction activity strengthened last month, despite worries about Brexit undermining demand. The IHS Markit/CIPS UK construction purchasing managers' index rose to 53.4 in November from 53.2 in October, ahead of expectations. The construction sector had a tough time at the beginning of the year as bad weather put many projects on hold, but as the weather has improved, so builders have made up for lost time. In the third quarter, construction output grew by 2.1 per cent compared with the previous period.

However, growth in the key UK services sector slowed to its weakest level for more than two years in November, as concerns over Brexit weighed on the economy and dampened consumer spending.

The IHS Markit/CIPS UK Services PMI Business Activity Index came in at 50.4 last month, down from October’s reading of 52.2 and the lowest since July 2016. A reading below 50 indicates a contraction. A number of respondents said Brexit had prompted clients to delay investment decision and there had been a slowdown in new business growth. Confidence for the year ahead showed the weakest degree of positive sentiment since July 2016.

The IHS Markit All Sector Output Index, a weighted average of the manufacturing, construction and services indices, printed at 51 in November, down from 52.2 in October and the slowest rate of expansion since July 2016.

UK house price inflation slowed to its lowest level since December 2012, according to data from Halifax released on Friday. The house price index rose  by an annualised 0.3 percent in the three months to November, after a 1.5% increase in the three months to October. Economists had forecast 1% growth. 

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Important Notes:

Main source of information: Company Report and Accounts, Bloomberg

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