U.K. service sector’s sentiment falls in November, headline service PMI index declines to 50.4

The U.K. service sector sentiment dropped in November, following above expected confidence readings from the manufacturing and construction sectors earlier this week. The headline Markit Services PMI index dropped to 50.4 in November from October’s 52.2, disappointing consensus expectation.

Apart from the headline fall, the details of the services report also underlined some disappointing trends. The flow of new business orders slowed in the month, with the index falling to 50.5. Less new business and a reduction in outstanding work does not augur well for the activity outlook in the months ahead, noted Lloyds Bank. Accordingly, companies reacted to this weaker backdrop by slowing the rate at which they increased headcount.

Still, the fact that companies continue to hire implies that working through order backlogs might give some support to activity for some time yet. While overall sentiment in the sector remains impacted by ongoing Brexit-related uncertainty, these dynamics imply there is considerable scope for sentiment to rebound, especially if the U.K.’s future with the EU gradually becomes clearer, stated Lloyds Bank.

However, for now, Brexit uncertainty further weighed on new business growth in November and reduced clients’ appetite to spend. Therefore, long-term expectations pared back further in November, with sentiment about the year ahead dropping to its lowest since July 2016, after the EU referendum result.

The fall in the services PMI more than countered the rise in the manufacturing PMI, seen earlier this week, to pull the composite measure down to 50.7 in November. According to Markit, these levels are in line with quarterly GDP growth of about 0.1 percent, a marked deceleration in the 0.6 percent rate seen in the third quarter.

At 14:00 GMT the FxWirePro's Hourly Strength Index of British Pound was neutral at 6.24171, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 22.8484. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex