Business surveys point to subdued momentum going into 2019 Nivens

Recent business surveys suggest that the UK economy has maintained a slow pace of growth into early 2019, driven, at least in part, by continuing Brexit uncertainty, which has negatively impacting business confidence across multiple sectors.

The latest CBI Growth Indicator reported that UK private sector activity was unchanged in the quarter to January. This stagnant momentum reflected falling services volumes, flat distribution sales volumes, and slowing manufacturing growth. Within the distribution sector, retail sales volumes dropped for the third consecutive rolling quarter. Looking ahead, private sector growth is expected to recover slightly in the quarter to April. Distribution (and retail) sales volumes are set to edge higher, manufacturing growth is expected to remain steady and services volumes to stay flat.

Chiming with the CBI’s business surveys, the latest IHS Markit/CIPS PMIs also reported slowing activity in January. The composite PMI indicated the weakest pace of growth since the EU referendum, as services flatlined and manufacturing activity slowed. Additionally, the construction PMI (which isn’t included in the composite measure) eased to its slowest rate since March 2018 (when construction activity was significantly hit by the cold, snowy weather).

The PMIs cited anecdote from its respondents that slower activity was driven at least in part by domestic political uncertainty around Brexit: with manufacturers sharply increasing their stockpiling activity, and businesses in the services sector becoming more likely to delay, or put off entirely, spending on new orders.

The CBI’s own business surveys also continue to show the impact of Brexit on activity: For example, the January CBI Distributive Trades Survey reported that wholesaling sector saw the ratio of stocks to expected sales rise to its highest since the financial crisis, which has been linked in part to “no deal” Brexit contingency planning.

Additionally, the January CBI SME Trends Survey reported that business optimism dropped for the second quarter in a row in January, with export sentiment falling at the fastest pace since the financial crisis. This fall in optimism coincided with continually weak investment plans among manufacturing SMEs.