"Beast from the East" blamed for UK service sector slowdown
Was anything besides bad weather to blame for the dramatic slow-down in UK service sector growth?
5 April 2018Growth in the dominant UK service sector, which accounts for more than three-quarters of the nation's GDP, slowed in March to its slowest rate since July 2016 - the month immediately after the EU referendum vote.The Markit/CIPS purchasing managers' index (PMI) for the sector came in at a disappointing 51.7 last month, down from 54.5 in February in an index where any reading over 50 represents growth.
"As a result, first quarter economic growth will likely have been adversely affected. The PMI surveys collectively signal a quarterly GDP growth rate of just under 0.3 per cent, down from 0.4 per cent in the fourth quarter, albeit with the rate of growth sliding to just 0.15 per cent in March alone."Employment in services increased at a "moderate pace" in March with some businesses pointing to difficulties in filling vacancies in a tight labour market. The sector also saw a sharp rise in costs, including higher staff salaries, utility bills and raw materials, including food and drink.
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What's to blame for disappointing UK service sector growth?
Analysts had been expecting a reading of 54 but their forecasts appear to have been confounded by widespread wintry weather for much of March, which had disrupted business operations and contributed to subdued consumer spending.The PMI report said that "heightened economic uncertainty" because of Brexit was also taking its toll on services and acting as a brake on growth.Economists said that last month's bad weather, including extensive snow falls, was mainly responsible for a marked slowdown in the construction PMI last month, while the index for manufacturing, published earlier in the week, showed manufacturing made steady, in unspectacular, progress in March.Chris Williamson, chief business economist at IHS Markit, 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.- More UK news
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"As a result, first quarter economic growth will likely have been adversely affected. The PMI surveys collectively signal a quarterly GDP growth rate of just under 0.3 per cent, down from 0.4 per cent in the fourth quarter, albeit with the rate of growth sliding to just 0.15 per cent in March alone."Employment in services increased at a "moderate pace" in March with some businesses pointing to difficulties in filling vacancies in a tight labour market. The sector also saw a sharp rise in costs, including higher staff salaries, utility bills and raw materials, including food and drink.
CIPS director says "not much to be enthused about"
However, firms remained optimistic over business prospects for the next 12 months, although Duncan Brock, group director at the Chartered Institute of Procurement & Supply (CIPS), said it there was "not much to be enthused about".But he added: "The question remains whether this will be a sign of a more entrenched slowdown or whether the unpreparedness for unseasonal weather conditions was the root cause."As further rises in cost burdens for the sector seem inevitable, and the Brexit shadow remains, there will have to be an injection of confidence and stronger economic performance next month to conclude March was just a glitch."Bank of England interest rates expected
James Smith, developed markets economist at ING, said that the weather-related decline in growth was unlikely to affect any decision by the Bank of England to increase interest rates, perhaps as early as next month."In reality, this means that policymakers will likely choose to look through this latest data when they meet next in May," he said. "Instead, the recent acceleration in wage growth, coupled with the agreement of a post-Brexit transition period, will be what counts for policymakers."We continue to expect a rate hike in May, and markets seem to be pretty much on-board with this idea too."But Neil Jones, head of FX hedge fund sales at Mizuho bank, said: “Fingers will point to the (bad weather) but my sense is longer term underlying issues remain in play, especially given this is the weakest number since the Brexit vote."For related news and features, visit our Enterprise section. Relocate’s new Global Mobility Toolkit provides free information, practical advice and support for HR, global mobility managers and global teams operating overseas.
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