UK services sector grows at slowest pace in three years as Brexit fears mount

The UK services sector grew at its slowest pace in almost three years in February, as the uncertainty surrounding Britain's future in the European Union dented the economy, a survey released on Thursday (3 March) showed.

The Markit/CIPS UK services purchasing managers' index − a survey of industry sentiment and plans − fell from 55.6 in January to 52.7 last month, comfortably below the 55.1 reading analysts had expected, marking the weakest reading since March 2013.

The index remained above the 50 threshold that indicates economic expansion but economists believe the latest survey pointed to a climate of economic uncertainty, generated by the prospect of a potential Brexit.

"Uncertainty ahead of the EU referendum could keep a lid on activity, meaning that the economic recovery could continue to look rather lacklustre in the near term," said Vicky Redwood, chief UK economist at Capital Economics.

"But with consumers' real earnings still rising quite strongly, we doubt that the economic recovery is about to slow sharply."

The sub-index tracking new orders also rose at the slowest pace since March 2013, while businesses in the services saw employment growth slow down to levels last seen over two-and-a-half years ago, Markit added.

"Survey responses reveal that firms are worried about signs of faltering demand, but boardrooms have also become unsettled by concerns regarding the increased risk of 'Brexit', financial market volatility and weak economic growth at home and abroad," said Markit's chief economists, Chris Williamson.

In February, Bank of England (BoE) policymakers dismissed the prospect of an economic slowdown, suggesting they had not registered a decline in investment plans due to the uncertainty surrounding Britain's membership of the EU but Williamson claimed the BoE will be well aware of it by now,

"The extent of the slowdown will be a shock to policymakers and surely puts to bed any talk of the Bank of England raising interest rates," he said.

Meanwhile, the UK composite PMI, which includes weaker-than-expected manufacturing and construction surveys published by Markit earlier this week, slumped from 56.1 in January to 52.9 last month, hitting its lowest level since April 2013.