Sunday 20 May 2018

Euro area grows as UK economy lags

European Central Bank HQ in Frankfurt
European Central Bank HQ in Frankfurt

Jonathan Cable

Business activity in the eurozone stayed robust in August as it outpaced Britain, where an economy increasingly bogged down by Brexit worries lost momentum, surveys showed on Tuesday.

Growth in the eurozone slowed only marginally from the blistering pace set in the spring, according to a Purchasing Managers' Index. An equivalent reading for Britain was the lowest since last September, shortly after the referendum vote to leave the European Union.

"The story in the next couple of years is that by all probability - unless we get an external shock - the eurozone recovery is for real. I don't see any reason why this will peter out anytime soon," said Erik Nielsen, group chief economist at UniCredit.

"Where would growth come from at this stage in Britain? There is erosion of real income because of the inflation numbers and the uncertainty means investment will not play a role until you get some clarity on what is going on (about Brexit)."

IHS Markit's Final Composite PMI for the eurozone held steady at 55.7 in August, slightly below an earlier flash estimate of 55.8. It has been above the 50-mark that separates growth from contraction since mid-2013. The services PMI fell to a seven-month low of 54.7 from July's 55.4 but was still one of the best growth rates in over six years. Similarly, while the new business index fell, it remained above its long-run trend.

The PMI for Britain's dominant service industry fell to 53.2 in August from July's 53.8, below the median forecast of 53.5 in a Reuters poll.

Britain, which initially withstood the shock of the Brexit vote before slowing sharply, had largely outpaced euro area growth since the financial crisis. (Reuters)

Irish Independent

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