This article is more than 1 year old

This article is more than 1 year old

Brexit anxiety dragged the UK economy almost to a standstill at the end of 2018, as a key gauge for the largest sector of the economy showed optimism among firms fell to the lowest levels since the financial crisis.

According to the latest snapshot for the services sector compiled by IHS Markit and the Chartered Institute of Procurement and Supply – which covers banks, restaurants and hotels – subdued growth conditions persisted in December, with concerns over the UK’s departure from the EU resulting in companies putting spending decisions on hold.

In an early warning sign that GDP growth almost certainly stalled in the final three months of 2018, the purchasing managers’ index (PMI) showed lower demand from cash-strapped consumers also acted as a brake on sales.

'Brexit anxiety' holding back British services sector – business live Read more

While the Markit/Cips services sector PMI rose slightly to 51.2 last month from 50.4 in November, the rate of increase in business activity was one of the slowest since the Brexit vote in 2016.

Economists said that GDP growth in the final quarter would plunge to 0.1% from a rate of 0.6% in the third quarter, ending the stronger period of growth over the summer and falling well short of the 0.3% expected by the Bank of England and the Treasury.

The warning came as it emerged UK house prices grew at the slowest rate in almost six years. According to the Nationwide house price index, annual values grew on average by 0.5%, the slowest since February 2013.

Robert Gardner, Nationwide’s chief economist, said the slowdown was prompted by the “impact of the uncertain economic outlook on buyer sentiment”.

Borrowing figures published by the Bank of England on Friday also revealed faltering demand for consumer credit and mortgages in November, in a further sign of the drop in retail spending and home purchases.

Threadneedle Street’s statisticians noted: “The extra amount consumers have borrowed each month to buy goods and services has slowed in the second half of 2018.”

The latest IHS Markit/Cips report on the services sector, which covers about 80% of the UK economy, showed November and December marked the weakest two months for morale among businesses since March 2009 – the low point of the recession that followed the financial crisis.

Chris Williamson, the chief business economist at IHS Markit, said: “The service sector typically plays a major role in driving economic growth, but is now showing worrying signs of having lost steam amid intensifying Brexit anxiety.”

It comes after the manufacturing sector, which accounts for about 10% of the economy, recorded stronger growth last month as companies ramped up their stockpiling to protect against the risk of a no-deal Brexit in less than 90 days’ time.

While the services PMI provides an early warning indicator, and is watched closely by the Bank and the Treasury, it reflects businesses reporting worse conditions rather than any exact details of slowing growth. Official growth figures for the fourth quarter of 2018 will not come until early February.

Paul Dales, the chief UK economist at the consultancy Capital Economics, cautioned the PMI was “overstating the extent of the easing” in the economy towards the end of last year.

“We think that 0.3% quarter-on-quarter [GDP growth] is more likely. If a Brexit deal is agreed soon, growth will surely rise this year,” he said.

MPs failing to reach a deal to support Theresa May’s Brexit plan or to come to a form of compromise agreement ahead of the 29 March deadline will likely act as a drag on business activity and discourage consumers from spending.

George Buckley, the chief UK economist at the Japanese bank Nomura, said: “Clearly everything now depends on Brexit,and we’ll know a lot more about which direction things are heading in over the coming two weeks as parliament returns on Monday.”

Duncan Brock, the group director at Cips, said: “Businesses remain under the Brexit cosh. Indecision is squeezing the life out of activity.”