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CBI: Outlook for UK services “bleak”

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It was confirmed this week that Germany’s economy shrank by 0.1% in the second quarter and analysts are suggesting that it will continue to deteriorate in the third quarter. If true, Europe’s largest economy will fall into recession. The Ger-man Business Confidence index, fell to 94.3 in August, down from 95.8 in July, the lowest reading since 2012.

Similarly, a survey on Tuesday showed a majority of British companies expect the UK economy to deteriorate over the next year due to the combination of trade wars, Brexit, and slowing consumer spending. The FT/ICSA survey of stock-market listed companies showed that around two thirds of firms now expect the UK economy to deteriorate, with nearly 60% saying their companies would be damaged by any form of Brexit. 

Another survey by the Confederation of British Industry (CBI) showed that activity and business sentiment in the UK’s key services sector is deteriorating, with both profits and confidence falling in the three months to August. Consumer services businesses, such as bars, hotels and restaurants, saw business activity decline for a fourth consecutive quarter, and they expect a further deterioration in the coming three months, with expectations at their worst level in seven years. Professional services companies, such as lawyers and accountants, saw profits drop at their fastest rate since 2011. The survey is deeply concerning because the services sector accounts for around 80% of the UK economy. Rain Newton-Smith, CBI Chief Economist, said: “The outlook for services firms is bleak at the moment, with Brexit uncertainty holding back investment and expansion plans. The idea of a no-deal Brexit is clearly weighing down the economy and is affect-ing businesses both big and small. So the economy can get back on track, the Government must re-double its efforts in securing a deal.”

The widely respected Gfk consumer confidence index, released this morning, shows that sentiment among UK consum-ers fell to a six-year low in August, with a reading of -14, compared to -7 a year ago. Gfk said the result was due to “pre-Brexit nerves.” All five components of the index deteriorated in August. Expectations for the general economic outlook fell to -38, 12 points worse than a year ago. A spokesman for GfK said: "Until Brexit leaves the front pages – whenever that will be – consumers can be forgiven for feeling nervous not just about the wider economy but also about their finan-cial situation. "If there is a continuation of that dip in our feelings about our future wallets, we'd quickly see a headline score crash to a level that approaches the worrying figures seen in the worst days of the 2008/2009 financial crisis.”

Meanwhile, UK house prices rose in at the fastest annual pace in three months in August. Nationwide said activity is pick-ing up from its pre-Brexit slowdown, but some analysts believe that the acceleration in sales could merely be a result of people rushing to complete transactions before the Brexit deadline in October. House prices rose 0.6% year-on-year in August after a 0.3% rise in July. Month-to-month, however, prices neither rose nor decreased.

 

 


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