The UK services sector activity contracted more-than-expected in the month of March, the final report from IHS Markit showed this Friday.

The seasonally adjusted IHS Markit/CIPS UK Services Purchasing Managers’ Index (PMI) was revised lower to 34.5 in March versus 34.8 expected and a 35.7 – March’s first reading.

It’s the survey-record fall in service sector activity amid emergency measures to slow COVID-19 pandemic.

Sharp reductions in activity were broad-based across the sector during March, with only the technology services sub- category recording pockets of continued business expansion.

Mirroring the trend for output volumes, latest data indicated a survey-record drop in new work received by service providers. The rate of decline was also much sharper than the previous record seen in November 2008. Survey respondents overwhelmingly attributed lower demand to a slump in business and consumer spending amid emergency public health measures to halt the spread of COVID-19.

New business from abroad fell at an even faster pace than that signalled for total orders during March, reflecting international travel restrictions and widespread business closures across Europe. A number of firms noted that existing projects had been placed on hold and new enquires from abroad had virtually ceased.

A rapid drop in new orders quickly translated into excess business capacity to meet existing workloads, as highlighted by the largest decline in unfinished business in more than two decades of data collection.

Employment numbers fell for the first time in five months and at the fastest rate since June 2009. Service providers commented on a mixture of hiring freezes and forced redundancies amid the slump in business activity seen during March. That said, a number of companies reported placing staff on furlough, which appears to have softened the overall scale of job cuts recorded in the latest survey period.

Average cost burdens increased at the slowest pace for just over four years in March, helped by falling fuel prices and efforts to reduce non-essential expenditure. Where a rise in input costs was reported, survey respondents often cited higher staff salaries. In contrast, prices charged by service sector companies fell at the steepest rate since August 2009.

Meanwhile, business expectations for the next 12 months dropped to the lowest in more than twenty years of data collection. Survey respondents overwhelmingly cited the public health crisis and uncertainty about the likely length of disruption to business operations.

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, said:

“The services sector was sucked into a black hole and flung into the unknown by the forceful impact of the COVID-19 coronavirus, affecting every area of supply chains from transport to purchasing levels and job creation.

“The abrupt drop in new orders was the sharpest since the survey began in 1996 according to the PMI data. Export orders were hit particularly hard and, in some cases, dissolved into nothing as border closures and travel restrictions resulted in the immediate cessation of normal business activities.

“Predictably this had a severe knock-on effect on employment as job losses accelerated to levels last seen in June 2009. As the pandemic raged, some companies resorted to hasty redundancies and a freeze on job hires to stay afloat in the short-term.

“It’s increasingly difficult to find the words to describe the devastation as every region in the world fights to save human life as the first priority. The likelihood of a global recession is now a given, though its duration and severity has yet to reveal itself. One thing is for certain, with the lowest business optimism for over 20 years, the immediate outlook for the services sector is beyond grim.”

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