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UK Service Sector Stagnates In October

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The UK service sector showed no change in output in October, while overall private sector activity continued to contract weighed down by construction, survey data from IHS Markit showed Tuesday.

The Markit/Chartered Institute of Procurement & Supply services Purchasing Managers' Index rose to 50.0 in October from 49.5 in September. However, this was among the lowest seen in the past ten-and-a-half years.

Although the score signaled a slight improvement on September's contraction, business levels were supported by existing contracts as the volume of new work declined further.

New work has decreased seven times so far this year as demand weakened due to Brexit uncertainty. Export orders declined at a near-record pace, unchanged from September. The decrease in new work led to more job losses in the sector, the survey showed.

On the price front, input price inflation remained above the long-run average but slowed to an 18-month low. Charges increased on average, but at a rate little-changed from September's 38-month low.

The 12-month outlook for service sector activity improved to a three-month high as a number of firms expected Brexit to be resolved early next year.

Weighed down by construction, the composite output index came in at 49.5 in October, up from 48.8 in September. A score below 50 indicates contraction.

Manufacturing production fell only fractionally, and service sector activity was unchanged since September.

"The October reading is historically consistent with GDP declining at a quarterly rate of 0.1 percent, similar to the pace of contraction in GDP signaled by the surveys in the third quarter," Chris Williamson, chief business economist at IHS Markit, said.

The big picture is that there is little momentum in the economy, Andrew Wishart, an economist at Capital Economics, said.

The Bank of England will sit on its hands this Thursday, but unless the drag of Brexit uncertainty can be removed in the next few months, interest rates are likely to be reduced, perhaps by 25 bps in the May 2020, Wishart added.

Data from the Society of Motor Manufacturers and Traders showed that UK car registrations declined 6.7 percent in October as economic and political uncertainty continued to weigh on consumer confidence.

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