UK economy at risk of shrinking as Brexit chaos hurts services

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People at a restaurant

 Service-sector order books have contracted at the steepest rate since the height of the global financial crisis in 2009, says IHS Markit. Photograph: Alamy

The British economy is at risk of sliding into a deepening downturn after stalling in the first quarter, following the weakest performance in the private sector in almost seven years as Brexit approaches.

In the latest sign the gridlock over leaving the EU is extracting a high price from the economy, the survey from IHS Markit and the Chartered Institute of Procurement and Supply showed that overall business activity stalled in March.

The country’s dominant services sector, which contributes about four-fifths of GDP, slipped into contraction as consumers and clients put spending decisions on hold in response to the intense political uncertainty.

The IHS Markit/Cips service sector purchasing managers’ index (PMI) slid to 48.9 in March from 51.3 in February, below the 50 mark separating growth from contraction for the first time since July 2016 – immediately after the EU referendum.

The survey of firms in the sector, which includes finance, shops and restaurants, will raise alarm bells at the Bank of England and the Treasury, which keep a close eye on the PMI indicators for early warning signs from the economy.

IHS Markit said the economy looked likely to shrink over the coming months, while warning that growth had probably stalled in the first quarter. Both the services and construction sectors plunged into reverse in March, with manufacturing only able to expand because of emergency stockpiling in the run-up to Brexit.

So far this year, service-sector order books have contracted at the steepest rate since the height of the global financial crisis in 2009, it added.

Chris Williamson, the chief business economist at IHS Markit, said: “A stalling of the economy in the first quarter will therefore likely turn into a downturn in the second quarter unless demand revives suddenly, which, given the recent escalation of Brexit uncertainty, seems highly improbable.”

Analysts have previously cautioned that the PMI readings, which rely on surveying businesses on current conditions rather than measuring sales figures, can overstate the extent of slowdowns in the economy.

The gauge had pointed to GDP growth of only 0.1% in the fourth quarter, before the Office for National Statistics said that the economy grew by 0.2%.

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