The UK service sector during November grew by its smallest amount in nearly two-and-a-half years, causing many analysts to believe the economy could stagnate during the final quarter of 2018. The IHS Markit/CIPS Purchase Managers Index for the service sector dropped from 52.2 in October to 50.4 last month – with a score of 50.0 indicating no expansion. November was the third consecutive month during which the figure has fallen, and it is now at its lowest point since July 2016, during the aftermath of the EU referendum result.

Growing Uncertainty for UK Businesses

The UK services sector is believed to account for around 80% of the total economy, and consists of many different businesses, including banks, restaurants and shops. Therefore, it’s unsurprising that many of the reasons given for the lack of growth in the services sector are synonymous with concerns made in other industries. The leading cause of concern for service providers was the recent confusion regarding Brexit; as the potential for a no deal scenario continues to increase, many major businesses are holding off on investment plans until the future landscape becomes clear.

The Markit/CIPS report stated that optimism for the year ahead had also dropped to its lowest since July 2016, primarily due to Brexit negotiations. The recent decline in UK business investment caused some to call the British economy ‘uninvestable’ due to current confusions, and this is felt in the services sector.

Is Brexit Solely to Blame for the Current UK Services Sector?

Whilst Brexit is seen as the primary cause for the service sector’s slowdown by industry experts, there are other notable issues currently being faced. One of the biggest problems for many UK businesses is a lack of high-skilled workers; a survey earlier in 2018 found that many companies were struggling to find enough skilled staff, a situation said to have been made worse by EU/UK negotiations. This skill shortage has caused further problems for those affected, such as a need to pay higher wages and an increased skills gap, which has led to reduced productivity.

This inability to hire suitably-skilled staff, or having to pay too much for staffing, is giving investors more reason to postpone or cancel future growth plans. Further business-wide problems, such as a decrease in consumer demand, give more reason for companies to defer any activities with an element of risk.

Other Market Powers Causing UK Economy Slowdown

Due to this report on the services sector, analysts expect the UK economy to grow by as little as 0.1% in the final quarter of 2018. Developments in the UK are primarily responsible, but they have been exacerbated in recent months by a decline in growth for the global economy. In early December, the American stock market tumbled as business concerns in the two major global economies, the USA and China, heightened. Outside of the public, political trade war which has hit both countries, the two major economies also reported domestic slowdowns which have prompted fears of a global growth decline over the near future.

Closer to the UK, the Eurozone reported in October its lowest levels of economic growth in around four years, at 0.2% in the third quarter. The leading cause of this particular issue was a stalling Italian economy, though there are issues in other major EU nations, as well. What is clear is that, despite problems in the UK economic and political landscapes, there is a noticeable warning of tough times ahead for major businesses.

With incoming revenues appearing more unpredictable than they have been in many years, now is the opportune time to make sure your business expenses are in order. By streamlining your costs, you will be able to further guarantee the safety of your company through this turbulent period, and procurement consulting firms can help you achieve this.

At ERA, we have been helping major corporations streamline their procurement strategies for many years, allowing businesses to cut millions off their expenses. We have specialists in a range of cost fields and will work with you to save money in areas such as packaging, distribution and utilities. So, if you are interested in seeing what our experienced team could do with your supply chains, why not get in contact with us today?