UK services sector shrinks for first time since Brexit vote

Economists warn of more pronounced downturn in coming months unless political deadlock is resolved

Britain's dominant services sector contracted for the first time since the Brexit vote last month as intense political uncertainty constrains demand and weighs on business sentiment.

The IHS Markit/CIPS UK services purchasing managers' index (PMI) showed a reading of 48.9 in March, lower than the 51.3 recorded a month earlier.

A figure below 50 indicates contraction, and last month's number also came in well below expectations of 50.9.

It was the first contraction since July 2016 but, aside from that month, the reading was the joint weakest over the past decade, equalling the previous low point recorded in December 2012.

Chris Williamson, chief business economist at IHS Markit, which compiles the survey, said: “A drop in service sector activity indicates that UK GDP contracted in March, with the economy stalling over the first quarter as a whole and at risk of sliding into a deepening downturn in coming months.

“Both the services and construction sectors are now in decline and manufacturing is only expanding because of emergency stockpiling ahead of Brexit. The underlying picture of demand is even worse than the headline numbers suggest.”

Survey respondents noted that corporate clients had opted to delay spending decisions in response to the impasse in Westminster, with MPs unable to break the Brexit deadlock nearly three years after the referendum.

There were also reports that Brexit concerns and worries about the economic outlook had held back household spending.

New order inflows deteriorated in each of the past three months, the longest sequence of falling sales volumes since the first half of 2009.

Mr Williamson added: “Service sector order books have contracted at the steepest rate since the height of the global financial crisis in 2009 so far this year, with companies reporting that Brexit uncertainty has dampened demand and led to cancelled or deferred spending, exacerbating a headwind from slower global economic growth.”

The dire data follows an equally poor showing from Britain's construction sector, which recorded its first back-to-back contraction since 2016 in March as Brexit anxiety continues to weigh on firms as they delay building projects.

Figures from the manufacturing sector on Monday also showed that Brexit stockpiling helped fuel a surge in output last month as firms sought to avoid being caught short.

IHS Markit added the economy could experience a sharp deterioration in the second quarter, with the consensus forecast for 1.3% growth in 2019 looking “far too optimistic”.

PA