Shock service sector data sparks downturn fears

A closely watched survey signalling a decline in the service sector has prompted fears that the UK could be heading for a downturn.

The purchasing managers' index from IHS Markit/CIPS fell to 48.9 in March from 51.3 in February - a weaker performance than all forecasts in a Reuters poll of economists.

It was the first time in three months that the service sector, which accounts for 80% of the UK economy, unexpectedly shrank. The news has caused a wave of gloom and anxiety in the financial sector.

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IHS Markit's chief economist Chris Williamson said survey results signalled that the UK economy shrank in March and is now “at risk of sliding into a deepening downturn in coming months”.

Catherine McGuinness, policy chair at the City of London Corporation, which represents London’s financial industry, says the slump in the services sector is “an extremely worrying development”, showing “the real strain that continued uncertainty is putting on the economy”.

Simon Harvey of Monex Europe warned that the services sector has been “hindered by lack of investment due to Brexit” and said the latest data “doesn't make for good reading as Brexit continues to drag”.

Andy Bruce of Reuters pointed out the data has weakened to levels usually associated with interest rate cuts.

However, Lee Hardman of MUFG bank offered a consoling “caveat”, stating that: “sentiment also fell sharply around the referendum but activity did not”.

The Times points out that jobs prospects “remained bright” and that recruitment in the employment-heavy services sector increased in March, reversing job shedding in the previous two months.

Earlier this week, monthly figures from the construction sector also showed a contraction.

Last week, the head of the British Chambers of Commerce slammed the government for “chasing rainbows” over Brexit as the possibility of a no-deal scenario loomed.