The latest services purchasing managers’ index (PMI) found the sector was at its joint-weakest point in the last decade, although staff hiring and business expectations rates both improved in March.
IHS Markit, which produced the report, said Westminster gridlock and the country’s uncertain short-term future caused companies and households to hold back spending last month.
“The continuing uncertainty was eventually going to take its toll,” said George Buckley, chief UK economist at Nomura in London, told Bloomberg.
“Where it typically effects growth, on the expenditure side at least, is through consumer spending and particularly investment. You get the impression businesses simply are just sitting on their hands.”
The analysis was seized on by Nationalists, with the party claiming that any form of Brexit would be damaging for Scotland.
A recent report by Scotland’s top economic adviser found that a No Deal Brexit could result in a recession worse than 2008.
Bruce Crawford MSP said: “Scotland has seen its economy hold up well amid the Tories’ Brexit uncertainty in the past few months – with encouraging growth and low unemployment figures.
“Despite this, the Tories’ Brexit obsession risks thousands of jobs, and serious damage to our economy.
“Brexit – which Scotland did not vote for – is a clear and present danger to our economy, our communities and our public services.
“The Tories forced us into this mess, and have consequently become the anti-business party – putting an anti-jobs Brexit first at all costs, and refusing to compromise to avoid damage to the economy.
“Throughout this Brexit process, the Tories have threatened to take us over an economic cliff edge.
“The only way to protect our economy and our vital national interests is to stop Brexit. Failing that, we must be able to remain in the single market, which is around eight times bigger than the UK market alone, and customs union.”