British service sector activity slowed unexpectedly in April after a volcanic ash cloud that grounded air traffic hit transport firms and uncertainty about the national election dented confidence, a survey showed today.
The Markit/CIPS services PMI headline activity index fell to 55.3 in April from 56.5 in March - confounding expectations for a rise to 57.0 and the weakest since January, when unusually harsh winter weather brought much of Britain to a standstill.
April's slowdown in activity reflected a two-point decline in the new business index, but firms nonetheless continued to take on new staff, with the employment index rising to a two-year high of 51.8 from 50.3 in March.
"An easing in the rate of expansion compared to March will raise some concerns about the durability of the upturn, but survey respondents commonly reported that the volcanic ash cloud, the timing of Easter and the general election were the cause of slower growth," said Markit senior economist Paul Smith.
Britons are today casting their votes in the closest-run election in a generation. The PMI figures could be used by the Labour government to support its argument that cutting government spending now risks derailing a fragile economic recovery.
The economy grew by a meagre 0.2 per cent in the first three months of this year and the survey may raise concerns the economy made a lacklustre start to the second quarter as well.
But Markit reckons April's slowdown was mainly due to temporary factors and that the survey is consistent with second-quarter growth of around 0.4-0.5 percent.
The election campaigns of the Labour, Conservative and Liberal Democrat parties have focussed mainly on how they would tackle a budget deficit of over 11 per cent of GDP without harming key public services and burdening ordinary people.
But whoever wins power at today's polls will probably have to impose the deepest spending cuts in decades, which could hurt consumer demand and hit private-sector firms who rely on government contracts. Markit said such concerns had contributed to firms' less upbeat view of their prospects over the next year, which fell more than four points from 74.6 in March.
"Positive forecasts for economic recovery and recent gains in activity and new business were offset to some extent by worries over potential public expenditure cuts," the survey said.
It also noted that the Transport, Storage and Communications sector had signalled the slowest growth of all sub-sectors, due mainly to the cloud of volcanic ash that settled over Britain last month, closing its airspace for almost a week.
Nonetheless, Markit said that 27 per cent of respondents reported an increase in business since March, with the personal services sector reporting the biggest monthly pick-up.
But intense competition for business kept firms' profit margins under pressure, with the prices charged index inching up to just over the 50-point level that separates contraction from expansion, while a rise in food and fuel prices drove the input prices index to its highest since September 2008.
Reuters