Britain’s economy, whilst varied, has long relied on a number of key sectors to keep it functioning for society. With the general decline of manufacturing (which currently accounts for a not inconsiderable 10% of GDP), the services industry has grown to become the UK’s calling card to the world, accounting for a rather astonishing 80% of GDP.
Now, following the news that the UK’s manufacturing economy entered a period of contraction in the month following the Brexit vote, a new study has shown the same effect on the services sector.
The Markit PMI index came in at 52.3 in June, but fell sharply to 47.4 for July. Any number below 50 indicates a contraction in the sector, and over 50 means growth. Although the decline was predicted last month, it nonetheless suggests the fastest pace of decline in the sector since March 2009 – the height of the financial crash.
It means more bad news for the new PM, Theresa May, who will also have been struck by the slowdown in construction output, which PMI pegged at 45.9, which, whilst beating a previous forecast of 44, is still firmly in contraction.
Indeed, though the construction economy is independent of manufacturing, the two have a close relationship thanks to the machinery required in construction. That means a further blow for manufacturing which could manifest in next month’s PMI for manufacturing, as well as in sales for our popular products like dowty seals.
Taken together, the services and construction declines point to a 0.4% quarterly decline in national GDP, though it’s unclear whether these sectors will remain in decline in the coming months. Chris Williamson, chief economist at Markit said: “It’s too early to say if the surveys will remain in such weak territory in coming months, leaving substantial uncertainty over the extent of any potential downturn. However, the unprecedented month-on-month drop in the all-sector index has undoubtedly increased the chances of the UK sliding into at least a mild recession.”
Meanwhile, Theresa May has chaired her first Cabinet Committee on Economy and Industrial Strategy, which is aimed at drawing up an industrial policy for a post-Brexit Britain that works for everybody.
The aim of the committee is to tackle long-term productivity growth, encourage innovation and focus on industries and technologies that will give the UK a competitive edge in the world.
Prior to the meeting, Mrs. May said: "We need a proper industrial strategy that focuses on improving productivity, rewarding hardworking people, with higher wages and creating more opportunities for young people so that, whatever their background, they go as far as their talents will take them. We also need a plan to drive growth up and down the country - from rural areas to our great cities."
The real challenge, however, is rebuilding a manufacturing industry which has been in serious decline for decades, finding policies which support businesses like ours without ignoring the wider global economy.