Markit released yesterday its Chartered Institute of Procurement and Supply (CIPS) Services Purchasing Manager’s Index (PMI) which rose to 53.7 in March showing that the UK services growth has only slightly increased compared to February’s 52.7. Also, the first quarter of this year was characterized by Markit analysts as the weakest in terms of output services growth since the first quarter of 2013.
The economic prospects of the second-largest economy in the European Union (EU) are further decreasing with the downfall of the Steel Industry. The British government is attempting to save thousands of jobs which are at stake since Tata Steel Ltd. has stated that will sell all its British assets.
Among the influential factors that urged the slowdown of the services expectations were the global economic uncertainty and the UK referendum which will be held on 23 June and will finally show whether Britain wants to be be “in” or “out” of the EU.
Manufacturing and Construction show similar trend
Markit/CIPS UK Construction PMI didn’t change compared to February, remaining at 54.2; above the 50.0 neutral value which separates contraction from expansion. The data of the survey regarding construction companies show that employment growth rate has been decreased highlighting the level of low confidence in the sector’s prospects. As Tim Moore, Senior Economist at Markit and author of the Markit/CIPS Construction PMI, pointed out: “March’s survey confirms that the UK construction sector is experiencing its weakest growth phase since the summer of 2013”.
As far as Markit/CIPS UK Manufacturing PMI is concerned, the latest press release indicated that the first quarter of 2016 was among the weakest ones during the past three years. More specifically, the Index reached 51.0 in March, just a 0.2 increase since February. The sluggishness of the manufacturing sector was also confirmed by Rob Dobson, Senior Economist at survey compilers Markit who mentioned that: “The UK manufacturing sector remained in the doldrums during the opening quarter of the year. Although March saw modest improvements in the trends for production and new orders, industry is still hovering close to the stagnation mark and will struggle to make a meaningful contribution to the next set of GDP growth figures”.
Consequently, the two aforementioned sectors were not enough to support UK’s economic growth. What is more, neither the services sector’s slight increase could reverse the downturn of the economy. More in detail, Chris Williamson, Chief Economist at Markit, stated on the issue: “An upturn in the pace of service sector growth in March was insufficient to prevent the PMI surveys from collectively indicating a slowdown in economic growth in the first quarter. The surveys point to a 0.4% increase in GDP, down from 0.6% in the closing quarter of last year. Across the three main sectors of the economy, firms reported the smallest increase in demand for just over three years, which in turn fed through to a reluctance to take on new staff. March saw the weakest rate of job creation for over two-and-a-half years”.
UK Steel Industry in danger
Tata Steel Ltd. has been experiencing serious losses with its UK operations. Specifically, the company has lost 68 million pounds in the three months until February 2016 compared to Last Year to Date. The lower steel prices due to global imports, especially from China, and the high energy costs were among the main reasons for those losses. The negative figures have forced Europe’s second-largest steelmaker by production capacity to state that it will sell all its UK assets.
In view of such an event, the UK government has been seeking for a potential buyer in order to secure all the thousands of jobs that are about to be lost at an imminent closure of Tata’s UK plants. Sanjeev Gupta, a potential candidate to buy the firm, mentioned yesterday after his meeting with business secretary Sajid Javid: “I am pleased to report that we had a positive meeting today. UK government appears highly supportive and is proactively engaged in finding a long-term solution”.
However, it is not certain yet if Gupta’s plan will ensure that the UK plants will remain open and everyone will get to keep his job.
Will Cameron persuade the Brits to remain in the EU?
Whether UK will leave or stay within the EU is a matter that will be decided through a referendum on June 23 and will undeniably affect both Europe and Britain. The latest Telegraph poll is showing that the “Remain” campaign is ahead with only 1% when certainty to vote is taken into consideration. The strategy of David Cameron, UK Prime Minister, to promote the “Remain” vote shows signs of effectiveness since its percentages are rising.
It seems that David Cameron is winning votes when presenting a very intimidating future to the British voters in case UK leaves the EU. Particularly, the UK Prime Minister stressed on the Daily Telegraph that: “A Brexit would be an act of economic and political self-harm which would badly damage British airlines, car manufacturers and financial services companies. Leaving the single market would hit our service industries hard and would be needless and reckless”.
All in all, it is probable that the UK will experience the negative consequences that David Cameron is mentioning in case of the “Leave” scenario. Besides, one of the main reasons that all sectors are slowing down is just because a referendum about Britain’s “in” or “out” the EU uncertainty.
There are still more than two months left till the UK referendum, which is more than enough to cause more turbulences in the economic and political European framework.