UK services sector shrinks for first time since July 2016 | The Daily Star
12:00 AM, April 04, 2019 / LAST MODIFIED: 12:06 AM, April 04, 2019

UK services sector shrinks for first time since July 2016

Britain's vital services sector shrank in March for the first time in almost three years, with activity slammed by Brexit turmoil and flat economic growth, a key survey showed Wednesday.

The purchasing managers' index (PMI) for services fell from 51.3 in February to 48.9 in March, according to IHS Markit, which compiles the data.

That was the lowest level since July 2016, which was one month after Britons voted in favour of leaving the European Union.

The figure below 50 in the index indicates that the service sector, which accounts for some 80 percent of British gross domestic product, is in contraction.

"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," said Chris Williamson, chief business economist at IHS Markit. The sector is widely regarded as the engine of the British economy -- and any weakness can therefore slam the brakes on growth.

Britain's economy had already struggled in the fourth quarter of last year, with anaemic economic growth of just 0.2 percent.

"Both the services and construction sectors are now in decline and manufacturing is only expanding because of emergency stockpiling ahead of Brexit," said Williamson.

He added that 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," he said. The March 2019 reading shocked economists because market expectations had been for a drop in the index -- which is regarded as a crucial barometer of UK business activity -- to 50.9.

“The latest UK services PMI makes it clear that the economy is being hit hard by all the uncertainty in surrounding Brexit," noted ING economist James Smith.

He added: "Of course, it's important to remember that PMIs don't always precisely reflect the extent of a slowdown, merely that an increasing number of firms are reporting worsening conditions.

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