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Economic Uncertainty & EU Referendum Hits UK Hospitality Growth

PMIlogoUK hospitality sector growth remained sluggish in March, according to the latest PMI® survey data from Markit and CIPS. Total activity increased at a slightly faster rate than in February, but on a quarterly basis growth over the first three months of 2016 was the weakest since Q1 2013. Moreover, incoming new business increased at the slowest rate since January 2013.

Global economic uncertainty and the upcoming EU membership referendum were commonly reported to be factors undermining service sector business expectations during the month. Employment in the sector continued to rise, but at a rate little-changed from February’s recent low. The latest survey data did signal a rise in inflationary pressures, particularly for charges which increased at the fastest rate in over two years. The headline figure for the survey is the seasonally adjusted Markit/CIPS UK Services Business Activity Index, a single-figure measure designed to track changes in total UK services activity compared with one month previously. Readings above 50.0 signal growth of activity compared with the previous month, and below 50.0 contraction.

The Business Activity Index rose to 53.7 in March, from February’s 35-month low of 52.7. This signalled a faster rate of growth in output, but the second-weakest in six months. Moreover, the Index remained below its long-run average of 55.2, and the average for the first quarter of 2016 (54.0) was the lowest of any quarter since Q1 2013.

Latest data suggested that growth will remain subdued moving into the second quarter of the year. The volume of incoming new business increased in March but at the weakest rate since January 2013, the first month of the current growth sequence. Growth of outstanding business at UK service providers was maintained in March, following January’s contraction. That said, the rate of growth remained modest. Service providers continued to expand workforces in March. The rate of job creation was solid overall, but remained weaker than the trend shown over the current 39-month sequence of growth. March saw an intensification of inflationary pressure in the UK service sector. Average input prices rose at the fastest rate since September 2014, linked to higher labour costs, rents and fuel prices. That said, input price inflation remained below the long-run survey average. Meanwhile, prices charged by service providers rose at the fastest rate in over two years. The longer-term outlook for service sector activity remained relatively subdued in March, with optimism remaining among the weakest registered over the past three years. Firms highlighted weak and uncertain global demand, as well as domestic factors such as the EU referendum, the housing market and public spending cuts as potentially undermining growth.

David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply: “The sector appeared to have pressed ‘pause’ on significant progress during March, with the level of new business rising at its slowest pace since January 2013. “Though the index was still in positive territory, the impact of increased competition, uncertainty over Brexit and new buy-to-let and stamp duty rules possibly cooling the housing market showed that there was less appetite for a more robust response in activity. “Backlogs also increased as skills shortages were apparent and, where rises in input costs were reported, respondents cited paying higher wages to retain good staff as one of the causes. Employment levels, however, continued to rise, now for 39 consecutive months.

 

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