Severe cold snap hits UK service sector

The UK services sector has had its weakest month since the Brexit vote, after arctic weather brought businesses to a standstill.

The latest snapshot of the economy from IHS Markit and the Chartered Institute for Purchasing and Supply found that services – which account for almost 80% of national output – registered virtually no growth in March.

While the damage to the economy is not expected to be permanent, Chris Williamson, the chief business economist at IHS Markit, said the the severe cold snap would have affected overall growth in the first three months of 2018.

“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. As a result, first-quarter economic growth will likely have been adversely affected,” Williamson said.

He said the economy was on course to have expanded by 0.3%, down from 0.4% in the previous quarter. He added the weather-related slowdown in March was unlikely to deter the Bank of England from considering an interest-rate rise at the meeting of its monetary policy committee in May.

The IHS Markit/CIPS purchasing managers’ index is a closely watched guide to the wellbeing of the economy, and showed that service sector activity slipped from 54.5 in February to 51.7 last month. A reading above 50 represents growth, but the expansion in March was the weakest since July 2016, the month immediately after the EU referendum.

The report said there was anecdotal evidence that unusually bad weather had disrupted business operations and contributed to subdued consumer spending in March. In addition, firms also reported that Brexit-related uncertainty was putting the brakes on growth.

Service sector firms said there had been a sharp rise in costs during March, with the rate of inflation the strongest for three months. Higher input prices were attributed to greater staff salaries, rising utility bills and increased raw material costs, particularly of food and drink.

Economist James Smith at ING Bank said: “Several bouts of snow over recent weeks mean we’ll have to wait until next month to see if the latest dip in the UK PMI signals something more sinister. Whilst we suspect this [dip] will prove temporary, we don’t expect an imminent acceleration in economic growth either. The consumer squeeze – while past its worst – looks set to persist, with real incomes set to remain relatively flat. With consumer confidence not far off post-Brexit lows, we expect the economy to continue struggling to regain full speed.”