In a monthly survey of a sector that accounts for around 80 percent of the British economy, financial information firm IHS Markit and the Chartered Institute of Procurement and Supply found activity levels at their lowest since July 2016, just after the country voted to leave the European Union.
The sector barely grew during November according to the survey. The so-called purchasing managers' index, a gauge of business activity, fell to 50.4 points in November from 52.2 the previous month. That means the index is just above the 50-point level that separates expansion from contraction on a 100-point scale.
"A sharp deterioration in service sector growth leaves the economy flat-lining in November as Brexit concerns intensified," said Chris Williamson, chief business economist at IHS Markit. Optimism in the sector was also at its lowest level since the Brexit vote, again because of an intensification of anxieties related to the exit from the EU.
Although the British economy managed to avoid falling into a recession after the Brexit vote, as many forecasters predicted, it has slowed significantly. Business investment has been particularly weak as executives wait for clarity as to Britain's future economic relationship with the EU. Many economists think this year's economic growth will be the lowest since 2009, when the economy was in recession following the global financial crisis.
With Brexit day looming — March 29, 2019 — and May struggling to get support from lawmakers for her agreement with the EU, concerns have grown that Britain could crash out of the EU with no deal. That could result in tariffs on British exports, restrictions on workers' movements and onerous and costly border controls.
The Bank of England warned last week the British economy could shrink by 8 percent in a matter of months if the country crashes out of the EU with no deal and no transition period to new trading arrangements with the EU.
May's deal with the EU, which involves maintaining close ties for trade in goods, faces defeat on Dec. 11, and that's likely to further stoke uncertainty. Several alternatives have been mooted in Parliament but it's unclear whether any other proposal would win enough support.
One of the worries is that consumers could start to become cautious, too, especially in the run-up to the crucial Christmas trading period. Pantheon Macroeconomics' chief U.K. economist Samuel Tombs says "Brexit uncertainty is draining momentum from the economy."