Snow and uncertainty cause services activity to weaken

Bad weather and Brexit-related uncertainty contributed to the slowest growth for UK services since just after the vote to leave the EU in March.

The IHS Markit/CIPS services purchasing managers index (PMI) dropped to 51.7 last month from 54.5 in February ­– the weakest performance for Britain’s biggest sector since July 2016 when business was rattled by the shock vote for Brexit. A figure of more than 50 shows activity growing.

Respondents to the services survey said the snow, wind and sub-zero temperatures that swept Britain in March were a key reason for the slowdown. The Siberian weather system – known as the “Beast from the East” – also caused the biggest drop in factory output since July 2016, the manufacturing PMI showed earlier in the week.

New services work came in at the slowest pace for 20 months. Respondents pointed to subdued consumer demand and uncertainty about Brexit for delays to decisions and risk aversion among clients. Business sentiment for the next 12 months weakened due to economic uncertainty.

The survey spans transport and communication, finance, business and personal services, IT and hotels and restaurants. Taken together, services make up about three-quarters of the UK economy.

Taken together with the manufacturing and construction reports, the three PMI surveys are consistent with the UK recording first-quarter growth in gross domestic product of about 0.3% – in line with the Bank of England’s forecast.

Chris Williamson, chief business economist at IHS Markit, said weak activity in March would eat into first-quarter growth but that Bank of England ratesetters would probably look through the short-term disruption when assessing the state of the economy.

He said: “The UK economy iced up in March, suffering the weakest increase in business activity since the Brexit vote amid widespread disruptions caused by some of the heaviest snowfall in years … Some caution is warranted this year as a drop in business expectations about the year ahead during March suggests the underlying trend remains one of weaker economic growth.”

Business costs for services companies rose at the strongest pace for three months as staff, utilities and raw materials costs increased. Average prices charged also rose briskly.

While first quarter GDP growth of 0.3% is weak, Paul Hollingsworth, senior UK economist at Capital Economics, said past occasions of bad weather suggested any spending or activity lost is likely to be made up in time. "As a result, we don’t think that the weaker surveys prevent the next hike in interest rates coming in May."