In their monthly gauge of business conditions, financial information firm IHS Markit and the Chartered Institute of Procurement & Supply found that the services sector stabilized in December as order books picked up and optimism rose to its highest level in 15 months. The services sector is particularly important as it accounts for around 80% of the British economy.
The survey's headline purchasing managers' index - a broad measure of activity in the sector - rose to 50.0 points in December from 49.3 during November. Though the index is not showing any growth - the 50 mark separates growth from contraction - the rise in optimism augurs well for the immediate future.
“The modest rebound in new work provides another signal that business conditions should begin to improve in the coming months, helped by a boost to business sentiment from greater Brexit clarity and a more predictable political landscape,” said Tim Moore, Economics Associate Director at IHS Markit.
Greater Brexit clarity emerged after the election of Dec. 12, which saw the Conservatives win an 80-seat majority in the House of Commons. That means Johnson has the numbers to drive through his Brexit withdrawal deal with the European Union so the country leaves the bloc as scheduled on Jan. 31. Britain will remain within the EU's economic arrangements, including the tariff-free single market and the customs union, until the end of 2020, during which time Johnson hopes to conclude a wide-ranging trade agreement for the EU.
Though that ambition is considered by many experts to be optimistic, the election result at least provided clarity about the immediate future. There had been concerns that Brexit uncertainty would persist or worsen if the election was inconclusive.
Brexit uncertainty has weighed on the British economy since the country voted to leave the EU in June 2016. Business investment has taken a particularly big hit as executives voiced concerns over a potential no-deal Brexit that would have seen Britain crash out of the EU without a withdrawal agreement and would have seen tariffs and other impediments imposed on trade.
Further signs of economic improvement emerged in new car sales figures, which showed a 3.4% year-on-year improvement in December. The lingering effect of the Brexit uncertainty was evident in the overall 2019 figures, which showed a 2.4% decline to 2.31 million. That was the weakest level since 2013 and 14.2% below the 2016 peak, the year the country voted to leave the EU.
“The car sector will be hoping that in 2020 the uncertainties surrounding the economy will be diminished,” said Howard Archer, chief economic advisor to the EY ITEM Club. “However, car manufacturers may be concerned about exactly what form the U.K.’s longer-term relationship with the EU will take and the possibility that a transition arrangement could expire at the end of 2020 without the U.K. and EU coming to agreement on the way forward.”