UK economy not boosted by services sector

March PMI figures for the services sector offer little encouragement.

The UK services industry saw a slight rise but slower growth in March 2016 compared to the previous month, according to a Purchasing Managers’ Index (PMI) survey by Markit Economics and the Chartered Institute of Procurement and Supply (CIPS).

Although the survey showed a small increase in total activity from February to March, it also reported its weakest quarterly result since the first quarter of 2013. It also registered slow growth in new business, which was at its lowest since January 2013.

The survey’s headline Services Business Activity Index climbed up from its 35-month low of 52.7 in February to 53.7 in March. Figures above 50 denote growth in the sector, whereas anything below 50 indicates contraction.

“The impact of increased competition, uncertainty over Brexit and new buy-to-let and stamp duty rules possibly cooling the housing market showed that there was less appetite for a more robust response in activity,” said David Noble, Group CEO at the CIPS.

The survey suggests that UK quarterly Gross Domestic Product (GDP) – an indicator of the level economic growth – has also slowed down, with GDP increasing by 0.6% in the final quarter of 2015 but by 0.4% in the first quarter of 2016.

The survey reflects global economic uncertainty as well as the upcoming UK Referendum vote on its EU membership as ‘commonly reported’ factors that are proving challenging to the UK service sector.

“The survey data suggest growth is more likely to weaken further in the second quarter,” said Chris Williamson, Chief Economist at Markit. “With the PMI already in territory traditionally associated with the Bank of England choosing to loosen policy, interest rate hikes seem a long way off.”