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UK Private Sector Contracts Most Since Mid-2016

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The UK private sector contracted at the fastest pace in more than two years in November, as a lack of clarity over Brexit and uncertainty from the forthcoming election weighed on activity, flash survey data from IHS Markit showed Friday.

The headline IHS Markit/Chartered Institute of Procurement & Supply composite output index fell to a 40-month low of 48.5 in November from the neutral mark of 50.0 in October.

The overall reduction reflected moderate falls in both manufacturing and service sector output.

The services Purchasing Managers' Index dropped unexpectedly to 48.6 from 50.0 in the previous month. The reading was forecast to rise slightly to 50.1.

The manufacturing PMI fell to 48.3 from 49.6 a month ago. The expected level was 48.8.

Chris Williamson, chief business economist at IHS Markit, said, "With an upcoming general election adding to Brexit-related uncertainty about the outlook, it's no surprise to see UK businesses reporting falling output and orders in November."

The decline signaled by the flash PMI follows stagnation in October and adds to what has been the survey's worst spell since the recession of 2008-9, Williamson added.

The services sector has been the stalwart of growth over the last year, but this may be a sign that the weakness in the rest of the economy is starting to creep into the economy's largest sector, Thomas Pugh, an economist at Capital Economics, said.

In the manufacturing sector, customer overstocking ahead of the now-postponed Brexit deadline, on October 31, acted as a headwind to production volumes in November.

New orders, at the composite level, dropped for the fourth straight month in November, which was the fastest since July 2016.

Softer demand led to the sharpest reduction in backlogs of work for over seven years in November. Companies reduced staffing numbers for the third straight month.

On the price front, data revealed a moderation in the rate of input cost inflation to its weakest for almost three-and-a-half years.

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