UK business activity stagnates amid modest drop in new work

January data indicated a renewed loss of momentum for the UK service sector, with a decline in incoming new work reported for the first time since July 2016.

At 50.1 in January, the headline seasonally adjusted IHS Markit/CIPS UK Services PMI Business Activity Index was down from 51.2 in December. The latest reading was the lowest for two-and-a-half years and the second-weakest since December 2012.

Survey respondents overwhelmingly linked the slowdown in business activity growth to heightened political uncertainty at the start of 2019. New business volumes declined for the first time in two and-a-half years during January, although the rate of contraction was only modest. Political uncertainty was the most commonly cited reason for lower new orders. Backlogs of work decreased for the fourth month running in January, which pointed to reduced pressure on business capacity and a lack of new orders to replace completed projects. Meanwhile, service providers reported more cautious staff hiring strategies in response to subdued demand and heightened uncertainty about the economic outlook.

Despite softer demand for staff, service sector firms continued to cite higher salary payments as a key factor driving up input costs during January. The overall rate of input cost inflation edged up to a three-month high.

Optimism towards the year ahead outlook for business activity rebounded slightly from December's 29-month low. That said, the latest reading was still one of the lowest seen since early 2009.

After the release of the data, the pound fell against major currencies, while the GBP / USD reached January 24 low.