The U.K.'s services sector contracted in September amid Brexit uncertainty, with expectations for activity at their lowest in a little over three years, fueling hopes of a rate cut from the Bank of England.
The services PMI Business Activity Index fell to 49.5 in September, from 50.6 in August, marking the fifth time in a decade that the index has fallen below the neutral 50.0 mark, data from IHS Markit and the Chartered Institute of Procurement & Supply showed.
The consensus estimate of economists polled by Econoday for September was 50.3. A reading above 50 shows expansion, while one below 50 indicates contraction.
New contracts declined for the sixth time this year, and backlogs fell for the 12th consecutive month. Meanwhile, layoffs in services companies rose at the fastest rate since August 2010.
The volume of new export orders declined at the fastest pace since March.
Business confidence fell for the fourth consecutive month, the longest stretch of decline in sentiment since the second half of 2015. The Future Activity Index, while above 50, was at its lowest since July 2016.
The All Sector Output Index, reflecting manufacturing output, construction activity and services activity, fell to 48.8 in September from 49.7 in August, marking a second successive decline in total private sector output.
"The increasingly dire readings push the surveys further into territory that would normally be associated with policy stimulus from the Bank of England, suggesting a greater likelihood that the next move in interest rates will be a cut," said Chris Williamson, chief business economist at IHS Markit.
BoE policymaker Michael Saunders recently said the central bank could cut rates should Brexit uncertainty continue, marking a shift in Saunders' stance after he said in June that the central bank could increase rates sooner than markets thought.
Meanwhile, the UK's manufacturing downturn continued in September, marking its longest contractionary spell in 10 years, as new orders, output and employment declined. The U.K. economy contracted 0.2% on a quarterly basis in the second quarter.
The U.K. government unveiled its latest Brexit offer to the European Commission on Oct. 2, proposing a new protocol that would keep Northern Ireland in the European single market for goods. Meanwhile, Prime Minister Boris Johnson will ask Queen Elizabeth to suspend the country's Parliament from the evening of Oct. 8 to make way for his new legislative agenda.
