16.12.201911:36:00UTC+00UK Private Sector Contracts Most Since 2016

The UK private sector contracted the most since mid-2016 as domestic political and Brexit uncertainties weighed on activity, flash survey results from IHS Markit and the Chartered Institute of Procurement & Supply showed Monday.

The composite output index fell to 48.5 in December from 49.3 in November. The rate of decline was the fastest since July 2016. Economists had forecast the score to rise to 49.5.

The latest decline was the second largest recorded over the past decade, and increases the likelihood that the economy contracted slightly in the fourth quarter as Brexit-related uncertainty intensified in the lead up to the general election, Chris Williamson, chief business economist at IHS Markit, said.

PMIs are stark reminders that the British economy is unlikely to be on the cusp of a sharp turnaround after last week's election result, James Smith, an ING economist, said.

The services Purchasing Managers' Index came in at 49.0, down from 49.3 in the previous month and the forecast of 49.5. The service sector shrank for the second straight month.

Likewise, the manufacturing PMI declined unexpectedly to 47.4 from 48.9 a month ago. The expected level was 49.2. The indicator signaled the sharpest downturn since August.

Service sector reported lower volumes of output and manufacturing production declined at the biggest rate for almost seven-and-a-half years.

Employment decreased for the fourth straight month in December. Further, the survey showed that a sustained fall in new business intakes resulted in the sharpest reduction in backlogs of work since July 2016.

On the price front, input price inflation remained lower than seen in the first half of the year. Due to competition for new work and cost pressures, prices charged by private sector firms grew at the slowest pace since April 2016.

Another survey from IHS Markit showed that British household finance deteriorated in December. The household finance index fell to 43.2 in December from 44.4 in November.

However, the current assessment contrasted with households' outlook towards their finances over the coming year.

Although expectations of improved financial well being were only marginally positive, they were the strongest since July.

The survey showed that appetite for major purchases decreased at a sharper rate in December.