Muted services growth may dampen UK economic recovery

Lacklustre growth from Britain's powerhouse services sector has cast fresh doubt over the resilience of the economic recovery.

Howard Archer knows there is flux in prospect. Picture: Hugo Lamb
Howard Archer knows there is flux in prospect. Picture: Hugo Lamb

Output from the vast sector, which spans everything from banks and accountants to hotels and restaurants, recovered only marginally last month after hitting its lowest level in nearly three years in February.

The closely-watched Markit/Cips services purchasing managers’ index showed a reading of 53.7 for March, improving on the low of 52.7 seen in February. Any reading above 50 denotes growth.

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But the pace of growth was dragged down by worries over the gloomy outlook for the global economy and concerns that Britain could vote to leave the European Union, yesterday’s report found.

It noted that the sluggish performance from the services sector – coupled with flagging growth in the construction and manufacturing industries – suggested gross domestic product (GDP) growth had slowed in the first quarter of 2016 to 0.4 per cent, down from 0.6 per cent in the fourth quarter of last year.

The latest findings are likely to reinforce expectations that the Bank of England will keep interest rates at 0.5 per cent for some time to come.

Howard Archer, economist at IHS Global Insight, said: “The surveys will likely maintain belief that there is a possibility that the Bank of England’s next move could end up being to relax monetary policy. Of course, June’s looming referendum adds substantially to the uncertainty outlook for monetary policy.”