By eToro

Brexit continues to haunt UK services sector

In horror movies, once the baddie is unmasked and you think it is all over, there is always a final twist you didn’t see coming – it seems to be the same for Brexit.

Just when we thought it was safe to go back into the markets with Brexit put off until October, it came back for another round. This time it was tied up with the local elections, which saw the Conservative party lose almost 900 seats across the country.

Labour also suffered catastrophic losses, and analysts, economic experts and market commentators all came to the same conclusion: Brexit, or the lack of Brexit, or the lack of a plan for Brexit… you get the idea.

In the week following the local elections, held on May 2, the index made up of UK’s top 100 listed companies fell almost 2%, as did the FTSE All Share index.

UK service companies have borne the brunt of the Brexit turmoil, with the Services PMI, which tracks sentiment in the sector, falling to 48.9 in March – the first drop since the EU Referendum in 2016.

Data company, Markit, said the contraction was caused by a lack of new contracts due to “intense political uncertainty”, adding that there was a real risk of the UK economy sliding into a “deeper downturn” over the coming months.

The service sector is the most dominant in the UK economy and includes retail, financial, public, business administration, leisure and cultural activities businesses.

The impact of a slowing economy, contracting services sector and Brexit returning to dominate the headlines saw the index tracking travel and leisure companies plummeting 3.16% in the week following May 2.

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This could be a result of consumers tightening their purse strings, rather than splashing out on takeaways or holidays.

Popular pizza people Dominos’ share price has yo-yoed over the last three years, plummeting nearly 26% in the last 12 months alone.

While the noise around Brexit is likely to have had an impact, the business also reported a tough start to the year following what it described as a ‘record-breaking Christmas’.

Market analysts, however, see value in the business and haven’t written it off yet, unlike travel firm Thomas Cook, which has also been plagued by bad news.

Having suspended its dividend in November last year, rumours about that it is likely to struggle to sell off its airline business should the UK leave the EU with no deal. In the past 12 months, its share price has dropped almost 85%.

While market noise is bound to hit short term performance of most UK listed companies, those with a solid business strategy, strong balance sheet and good management team, should retain value for investors willing to ride out the volatility — we’re just not sure when it will end.

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