Business activity declines for the first time in over two years

Business activity falls for first time in over 2 years
Business activity declines for the first time in more than two-and-a-half years

The latest data for March has shown a marginal reduction in business activity across the UK service sector, ending just over two and a half years of sustained expansion.

The IHS Markit/CIPS UK Services PMI fell to 48.9 in March, down from 51.3 in February, falling below the 50.0 no-change mark for the first time since July 2016.

Aside from the brief dip after the EU referendum, the latest reading was the joint weakest over the past decade, equalling the previous low in December 2012.

Services Business Activity Index

Services Business Activity Index
Sources: IHS Markit, CIPS (sa, >50 = growth since previous month)

Brexit effect

Widespread reports show the political uncertainty surrounding Brexit constrained demand in March, with clients waiting for clarity on Brexit before committing to new projects. New order inflows have deteriorated in each of the past three months, representing the longest sequence of falling sales volumes since the first half of 2009.

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, said: “With the headline index posting just below 50 for the first time since July 2016 this month’s results are a seriously worrying development.”

Chris Williamson, Chief Business Economist at IHS Markit 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.”