Brexit slump fears rise after services growth grinds to halt

The UK’s dominant services sector is in the grip of a “seriously worrying” decline triggered by the political chaos over Brexit, experts warned on Thursday, amid heightened alarm over a potential downturn.

The nation’s economic fortunes hinge on services because they account for around 80% of output.

But the Chartered Institute of Procurement & Supply’s latest snapshot of the sector showed an unbroken two-and-a-half year run of growth coming to an end last month, when the UK was supposed to leave the European Union.

The Cips activity index, where a score over 50 signals industry expansion, slipped from 51.3 to 48.9 in March, the lowest since the immediate aftermath of the 2016 referendum.

Cips director Duncan Brock said: “This month’s results are a seriously worrying development.”

The closely watched survey of 650 companies revealed clients were waiting for clarity over Brexit before committing to new projects. New orders fell for the third month running, marking the longest run of sliding sales since 2009.

Although firms are hiring again after shedding jobs earlier in the year, export orders also fell against the backdrop of a world economy struggling for momentum.

Brock added: “A fight for survival beckons if this market stagnation becomes entrenched, the global economy remains downbeat and the Brexit cloud is not lifted.”

Combined with flagging manufacturing and construction surveys, survey compiler IHS Markit also warned that a stalling of the economy in the first quarter “will therefore likely turn into a downturn” in the second quarter unless the uncertainty lifts.

The current consensus forecasts for UK growth of 1.3% this year also look “far too optimistic”, Markit added.

Prime Minister Theresa May is set to hold talks with Labour leader Jeremy Corbyn to find a way through the political impasse, with the UK set to crash out of the UK without a deal next week.

EU leaders will decide on extending Article 50 at an emergency summit next Wednesday.

ING economist James Smith said: “If there’s another extension to the Article 50 process, potentially one that lasts for nine to 12 months, this would continue to keep a lid on investment and growth for the foreseeable future.”