UK service sector contracts as Brexit begins to bite

Josh Hall's picture

The UK service sector shrank last month for the first time since 2016, amid growing concern about the country’s political future.

Figures from analysts Markit show that activity in the sector fell on the PMI measure 48.9 in March, from 51.3 in February, where a figure below 50 represents a contraction.

This marks the first time the service sector has shrunk since the EU referendum.

Markit says the fall is due to a lack of new business caused by “intense political uncertainty” in the UK.

IHS Markit chief business economist Chris Williamson said the findings cast wider doubt on the strength of the UK economy as a whole.

“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. 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.

“A stalling of the economy in the first quarter will therefore likely turn into a downturn in the second quarter unless demand revives suddenly which, given the recent escalation of Brexit uncertainty, seems highly improbable.”

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