UK service sector sees slow recovery, while IMF fears and oil falls hit markets - as it happened

• UK service sector hit by growth and Brexit concerns
• Eurozone services see slowdown in growth
• ..but retail sales stronger than expected
• Markets fall on IMF and oil worries
• Christine Lagarde warns of risks to global economy
• Yen hits 17 month high against the dollar

2.54pm BST

The US service sector grew by more than forecast in March, according to Markit, but not enough to mask concerns about the overall state of the world's largest economy

The services final PMI came in at 51.3 compared to an initial estimate of 51 and the 49.7 figure for February.

The welcome news of sustained robust hiring in March, as indicated by both the PMI surveys and non-farm payroll numbers, masks a more worrying picture of a further slowing in economic growth so far this year.

The survey data, which have historically provided a reliable guide to official GDP numbers, suggest the annualized pace of economic growth weakened to 0.7% in the first quarter.

2.37pm BST

The combination of volatile oil prices, the IMF warning of risks to the global economy, and a spate of uninspiring economic data has seen Wall Street follow other markets into the red.

Morgan Stanley cuts US Q1 GDP forecast from 0.8% to 0.5% after worse than expected trade report.

2.05pm BST

America's trade deficit widened by more than expected in February, up 2.6% to $47.1bn rather than the $46.2bn forecast by analysts.

An revival in exports was offset by an increase in imports, making the deficit the highest since August.

1.27pm BST

With the yen at a 17 month high against the dollar despite Japan's negative interest rates, it is no surprise there have been suggestions the country's central bank could be prepared to act again. Now Reuters is reporting that it will consider further measures at its meeting this month:

Bank of Japan policymakers will likely debate the possibility of easing monetary policy further at a rate review this month, as a raft of gloomy data threatens their scenario that a moderate economic recovery will accelerate inflation towards a 2 percent target, sources familiar with their thinking said.

If the central bank were to act, it would more likely increase asset purchases than cut interest rates, the sources said, as financial institutions are still scrambling to adjust to a negative rate policy deployed in January.

"It will be a question of whether the BOJ feels it has forestalled risks in January or whether they feel that January's action wasn't enough," said one of the people familiar with the BOJ's thinking.

The BOJ stunned markets in January by adding negative interest rates to its massive asset-buying programme, dubbed "quantitative and qualitative easing," to forestall the risk of external headwinds derailing a fragile economic recovery.

12.31pm BST

The latest warning from the IMF follows a familiar pattern, but the fund has to do more than just talk, says Larry Elliott. It needs to act as well.

His full analysis is here:

Related: IMF has to act, not just talk, to jumpstart global economic growth

11.27am BST

Britain could enter a recession at the end of 2016 if it votes to leave the European Union, according to strategists at Aviva Investors. They said:

Aviva Investors believes that if the UK were to vote to leave the EU, there would be a significant and negative knock-on effect on business sentiment, which would likely push the UK economy into recession towards the end of this year. The consequences of a vote to leave wouldn't just be felt temporarily. There would likely be a permanent reduction in exports to the EU, while foreign-direct investment into the UK would also suffer, leading to higher unemployment and a decline in the country's long-term growth potential. Furthermore, negotiations to leave would be complex and difficult. EU leaders would not be expected to give the UK an easy ride for fear of encouraging others to follow.

Looking further ahead, the likely reduction in exports to the EU could reduce national income by three per cent, rising to as much as ten per cent in a worst-case scenario. Finally, the long-term growth potential of the UK could also be negatively impacted by, amongst other things, lower foreign direct investment. While any estimate of that effect is highly speculative, it could potentially shave 0.2-0.4 percentage points off growth.

Financial markets would undoubtedly react badly to a vote in favour of 'Brexit' too. Aviva Investors would expect an immediate and sharp fall in the pound. The UK runs comparatively large fiscal and current account deficits, and as such relies on foreign capital to finance the deficiency in domestic saving. If, as anticipated, the uncertainty created by a vote to leave causes international investors to re-appraise their appetite for sterling assets, the decline in the pound could become more severe over time.

While the Bank of England would no doubt ease policy in response to any economic downturn, it seems unlikely this would prevent UK share prices from falling sharply. In particular, shares in smaller companies, which tend to rely more on the domestic economy, would probably underperform. The impact on gilts is less clear. They may benefit from some domestic safe-haven flows, but at the same time, many international investors will be looking to sell.

11.06am BST

The continuing slide in crude prices follows the growing belief that a meeting in Doha this month to discuss production freezes to deal with the supply glut may not come up with anything concrete.

So oil could see further volatility ahead, according to Bjarne Schieldrop, chief commodities analyst Nordic bank SEB:

The latest price moves to the downside was an accident waiting to happen as far as we can see. We never could believe why much hope at all was placed on the production freeze discussion and the connected Doha meeting on 17 April. Nonetheless it probably helped to hold Brent in a sideways trading range during most of March as well as helping to build up a record net long speculative position in Brent crude. Then with Saudi Arabia's straight talk on production freeze placing the whole issue in the Iranian camp, the continuous building in Brent speculation halted and is now instead in reverse.

11.02am BST

In the wake of the IMF worrying about emerging markets, ratings agency Standard & Poor's reckons the Asia-Pacific region will still lead global growth this year despite its tumultuous start to the year. In a new report, it said:

"We believe the market's concerns leading up to the sell-off in global markets, while having some validity, were overdone--and even a bit misguided," said Paul Gruenwald, Standard & Poor's chief economist for Asia-Pacific.

"We think that the real challenge is picking up the pace of structural reforms China needs to implement as it moves toward a more consumption- and services-based model with a greater role for the marketplace."

We have lowered our Japan 2016 GDP growth forecast to 0.8% (from 1.1%) due to a weak finish in 2015 and have kept our 2017 forecast of 0.4% unchanged. This will be a tough year for the Bank of Japan's reflation program. Monetary conditions are tighter than desired, mainly because of Japan's safe-haven status in the markets, which leads to a strong yen.

The task for other Asia-Pacific economies will be to ensure that flexible markets and sound policies will help them to adjust successfully to China's new growth drivers.

10.41am BST

Falling consumer confidence does not seem to have had much impact on eurozone retail sales, said Bert Colijn of ING Bank, thanks to low inflation and higher disposable income:

The worthless start of the year for financial markets still has not impacted consumption in the Eurozone much, as retail trade increased with 0.2% month-on-month and 2.4% year-on-year. This surprised analysts as they had expected retail sales to have remained stable in February. This is the highest reading of retail sales since February 2008, which was the pre-crisis peak.

Even though Eurozone consumers are wary of the global economic and political situation, the sharp downturn in consumer confidence over the past months is not yet having much of an impact on retail trade. Negative inflation has been enticing to consumers and stores are profiting. Besides that, the unemployment rate continued to decline in February, which is helping disposable income grow.

10.13am BST

Retail sales in the eurozone rose by 0.2% month on month in February and 2.4% year on year, better than analysts had been forecasting.

According to a Reuters poll, the month on month figure was expected to be flat and the annual rise 1.9%.

10.00am BST

Back with the day's eurozone data, and RBC Capital Markets says it was a mixed picture, particularly for Spain and Italy:

An improvement in the headline composite PMI reading for both Spain and Italy disguises a more mixed picture from the details.

For Spain, an improvement in the services sector suggests that domestic activity remains relatively resilient in the face of its political paralysis but the Italian services reading points to a worrying slowing in the rate of domestic expansion even if a stronger manufacturing reading compensated this month.

9.52am BST

The uncertainty over the EU referendum is a major reason for the UK economy losing momentum, says James Knightley at ING Bank:

The UK's service sector purchasing managers' index has risen a fraction more than expected to stand at 53.7 in March versus 52.7 in February (consensus was 53.5). With the manufacturing and construction PMIs remaining little changed (but at least staying in growth territory) the overall composite index has risen to 53.6 from 52.7. This is still well down on the average level of 2015 and suggests that the UK economy has lost momentum at the start of the year.

An obvious factor behind this is the upcoming referendum on the UK's ongoing membership of the European Union. With opinion polls suggesting that the vote will be incredibly close, businesses are likely to act cautiously and not embark on any significant expansion plans until the economic outlook is clearer. This means that investment and labour hiring plans will be more limited, which is something that was also highlighted in the recent Deloitte CFO survey. As such, the economy looks set to post slower growth in the second quarter of 2016 than in first quarter.

9.47am BST

Still, it was at least growth:

Weakest UK service sector growth since Q1 2013, but growth none the less and March's number was a slight improvement pic.twitter.com/TS6rM42Xi3

9.42am BST

The PMI figures seem to suggest a UK interest rate rise is indeed some way off. Chris Williamson, chief economist at Markit, said:

An upturn in the pace of service sector growth in March was insufficient to prevent the PMI surveys from collectively indicating a slowdown in economic growth in the first quarter. The surveys point to a 0.4% increase in GDP, down from 0.6% in the closing quarter of last year.

Across the three main sectors of the economy, firms reported the smallest increase in demand for just over three years, which in turn fed through to a reluctance to take on new staff. March saw the weakest rate of job creation for over two-and-a-half years.

9.39am BST

Commenting on the PMIs, Markit said:

UK service 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 the first quarter of 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.

9.38am BST

Markit says the UK has seen the weakest quarter of output growth for three years:

March Markit/CIPS #UK Services #PMI completes weakest quarter of output growth since Q1 2013 https://t.co/CFpLytU5QY pic.twitter.com/DRhVzyRrhe

9.34am BST

Worries about the global economy, as well as the prospect of leaving the European Union, have helped to hold back the UK service sector.

The Markit survey for March shows only a slight recovery after the index reached its lowest level in three years in February.

UK Services PMI (Mar) 53.7 versus 53.5 expected, previous 52.7 | Composite PMI (Mar) 53.6 versus 53.4 expected, previous 52.8 revised 52.7

9.28am BST

The March eurozone PMIs could knock back forecasts for the region's growth this year, said Howard Archer of IHS Global Insight:

A setback to hopes that the Eurozone economy may just be starting to improve after a dreary start to 2016 as the March services purchasing managers index was revised down markedly to be at a 14-month low

This meant that overall Eurozone services and manufacturing activity could only edge up in March from the 13-month low suffered in February.

9.25am BST

The market slide is accelerating, with the oil price falling further and the Dax hit particularly hard by the poor factory orders data from Germany. The disappointing service sector data is also hitting sentiment, as well as the downbeat comments from the IMF, with Christine Lagarde warning of risks to the global economy.

The FTSE 100 is now down 1.2% while the Dax has dropped just over 2%. France's Cac is 1.7% lower.

9.08am BST

The final reading for the eurozone services PMI has shown a dip from the previous month, and is lower than the initial readings suggested.

The Markit index came in a 53.1 for March, down from 53.3 in February and lower than the first estimate of 54.

March saw the rate of economic expansion in the euro area improve for the first time in three months. The extent of the acceleration was negligible, however, and less marked than that indicated by earlier flash data. Manufacturing saw faster growth of production, but this was mostly offset by a slower rate of output expansion at service providers.

#Eurozone growth remains subdued during opening quarter of 2016. #PMI at 53.1 (Feb: 53.0) https://t.co/BbzR9ttx3E pic.twitter.com/Vup963JooR

9.02am BST

Germany's services PMI has also come in below expectations.

The index came in at 55.1 in March, down from 55.3 in the previous month and below expectations of a rise to 55.5.

German Services PMI (Mar F) 55.1 versus 55.5 expected, previous 55.3 | Composite PMI (Mar F) 54.0 versus 54.1 expected, previous 54.1

The German service sector continued to expand at a solid pace at the end of the first quarter, although activity and new order inflows both increased at weaker rates. Moreover, a closer look at the sub- indices highlights some concerns that growth may slow further in coming months. In detail, the amount of work in the pipeline rose only marginally and companies took a more cautious approach with regards to hiring policies, with the rate of job creation the weakest since last July.

Meanwhile, input costs faced by service providers rose at the slowest pace for more than six years, as the low interest rate environment continued to exert downward pressure on inflation.

Business activity in #Italy service sector rises at slowest rate for over a year as #PMI posts 51.2 in March https://t.co/wraz9hhHcI

#Italy's March #PMI down to lowest level in 12m, dealing another blow to hopes that recovery was gaining pace. pic.twitter.com/G9C5exNJXv

8.56am BST

The French service sector has failed to improve as much as expected in March.

The Markit survey shows the services PMI still below 50, a sign of contraction, against expectations of a figure of 51.2:

French Services PMI (Mar F) 49.9 versus 51.2 expected, previous 49.2 | Composite PMI (Mar F) 50.0 versus 51.1 expected, previous 49.3

March PMI data round off a broadly flat performance of the French service sector on average over the first quarter. There remains little sign of the stagnancy lifting - although business expectations rose to the highest since last August they remain subdued in historical terms. Competitive pressures saw another round of output price cutting as firms competed for new business, underlining the challenging environment.

8.47am BST

There are also positive service sector figures from Spain, according to Markit. It said:

Growth in the Spanish service sector quickened at the end of the first quarter of the year, with both activity and new orders rising at the fastest rates in four months. An increase in outstanding business was also recorded, and higher workloads encouraged further job creation. The rate of input cost inflation remained relatively weak, but companies raised their output prices for the first time since last October.

#Spain Services #PMI rises to 4-month high of 55.3 in March, up from 54.1 in
Feb. https://t.co/rekWmsbfwt pic.twitter.com/bLk68AIQpj

The pick-up in service sector growth in March is something of a relief following a slowdown in previous months, and suggests that the Spanish economy was able to maintain forward momentum during the first quarter of the year. Elsewhere, while output prices were raised for the first time in five months, there is still little evidence of any meaningful inflationary pressure returning to the sector.

8.44am BST

The yen has hit a 17 month high against the dollar, prompting talk of possible intervention:

Many rumours of the Bank of Japan intervening to weaken the Yen this morning #Abenomics https://t.co/21IrIyPJFV

Clearly risk sentiment is not good and oil prices are declining this week and all these feeding and driving the dollar lower against the yen. The yen is also higher against other currencies.

Of course, the Bank of Japan will be concerned not just about the rise in the yen, but also a drop in stock prices. So we may see some comments from the authorities there, but actual intervention is unlikely until dollar drops below 110 yen.

8.37am BST

The Irish service sector expanded more quickly in March, according to Markit.

Faster expansion in activity in #Ireland service sector as #Investec #PMI rises to 62.8 in March from 62.1 in Feb https://t.co/6lKBajhXyN

The latest Investec Services PMI Ireland report shows a slight quickening in the rate of growth of business activity, with the headline PMI improving to 62.8 in March from the previous month's 62.1 reading. This improvement was in spite of a softening in New Orders (to a five month low, albeit it is still in growth territory), while New Export Orders eased to their slowest pace of growth since May 2012. On the latter, while panellists indicated that the UK remained a source of new business, there were suggestions that the recent strengthening of the euro against sterling had weighed on growth of new business.

8.33am BST

Another warning from the IMF on the global economy, from managing director Christine Lagarde. Katie Allen writes:

Governments must urgently pursue more growth-friendly policies to shore up a weakening global economy beset with risks, the head of the International Monetary Fund has said.

Christine Lagarde also put governments on alert that they should prepare contingency plans in case threats to the fragile global economy materialise.

Related: IMF director urges governments to 'pick up the growth baton'

8.25am BST

With metal prices and oil falling back, it's no surprise that commodity companies are among the biggest losers so far. The top fallers in the FTSE 100 are:

London's FTSE-100 has started the session with some notable losses as tumbling commodity prices find themselves back at the top of the agenda. Hopes may have been building that we would see another leg higher emerge for the asset class, but yesterday saw the Dow Jones Non Ferrous Metals Index slump almost 5% and WTI crude is eyeing a move back below $35/barrel, too. As a result it's the natural resources stocks that are scattered across the foot of the index in early trade, with Royal Dutch Shell and BP also being dragged very much into the fray.

8.15am BST

Interest rate watch: the Reserve Bank of Australia left rates unchanged at 2% as expected, while the Reserve Bank of India cut its main interest rate by 0.25% to 6.5%.

8.09am BST

As forecast, stock markets in Europe have followed their Asian counterparts with sharp falls in early trading.

The FTSE 100 is down 61 points or 1%, while Germany's Dax has dropped 1.8% after the poor factory order figures and France's Cac has fallen 1.4%, while Spain's Ibex is 1.3% lower.

8.05am BST

The IMF is also concerned about the insurance sector:

Across advanced economies the contribution of life insurers to systemic risk has increased in recent years, although it clearly remains below that of banks. This increase is largely due to growing common exposures to aggregate risk, caused partly by a rise in insurers' interest rate sensitivity. Thus, in the event of an adverse shock, insurers are unlikely to fulfill their role as financial intermediaries precisely when other parts of the financial system are failing to do so as well. The higher common exposures do not seem to be driven by marked changes in insurers' investment portfolios, although smaller and weaker insurers in some countries have taken on more risk.

The findings suggest that supervisors and regulators should take a more macroprudential approach to the sector. Doing so is necessary if supervision is to go beyond guarding against the solvency and contagion risks of individ- ual firms and take on the systemic risk arising from common exposures. Steps that would complement a push for stronger macroprudential policies include the international adoption of capital and transparency standards for the sector. In addition, the different behavior of smaller and weaker insurers warrants attention by supervisors.

8.02am BST

Policymakers need to act to prevent problems in emerging markets threatening global stability, the IMF has said.

In excerpts from its latest financial stability report the fund said:

The financial integration of emerging market economies into the global economy has affected international financial markets in both desirable ways-more efficient asset prices and resource allocation-and undesirable ones-amplification of shocks and transmission of excess financial volatility...

The significant growth in global capital flows due to mutual fund investments is also affecting the nature and size of financial spillovers from emerging market economies. The decision by mutual funds to sell investments in multiple countries in response to losses in one or more countries, or because of withdrawals by their own investors, is called the portfolio channel of contagion. This channel has gained in importance as a source of financial spillovers from emerging market economies to equity markets in recent years, in line with the increase in asset allocation to these countries. The impact from the portfolio channel from advanced economies remains significantly larger, according to the IMF.

The IMF research shows that among large emerging market economies, China is unique: news about its economic growth has an economically significant and rising impact on global equity prices. In the last five years alone, the impact of growth surprises from China on global equity prices has almost quadrupled. By contrast, changes in Chinese asset prices tend to have little effect on asset prices elsewhere.

"Purely financial spillovers from China are still very small, but likely to grow considerably as China gradually continues to integrate into the global financial system," said Gaston Gelos, head of the Global Financial Stability Analysis Division at the IMF.

"The evidence underscores the need for policymakers to take into account economic and policy developments in emerging market economies when assessing their own countries' prospects," said Gelos.

Enhanced international economic and macroprudential policy cooperation can also play an important role.

7.40am BST

German factory orders fell unexpectedly in February, according to figures from the economy ministry, hit by a decline in overseas demand.

They dropped 1.2%, the biggest monthly fall in six months and well below expectations of a 0.2% rise. Carsten Brzeski at ING Bank said:

German new orders dropped sharply in February, adding to evidence of continued stagnation in the German industry. New orders declined by 1.2% month on month, from an upwardly revised increase of 0.5% month on month in January. On the year, new orders were up by 0.5%. The last months have not been easy for the German industry. Since May last year, new orders have dropped in six out of ten months. Interestingly, the February drop was driven by falling foreign demand (-2.7% month on month), whole domestic demand picked up somewhat after a two-months slump.

7.32am BST

Good morning and welcome to our rolling coverage of the world economy, the financial markets and business.

Stock markets are under pressure again as the International Monetary Fund warned of the knock on effect from growing problems in emerging markets, and oil prices slipped again. Brent crude is down 0.3% at $37.57 a barrel, as hopes of a deal to curb production at this month's planned meeting of producers continue to fade.

Our European opening calls:$FTSE 6133 down 32
$DAX 9732 down 90
$CAC 4316 down 29$IBEX 8529 down 69$MIB 17540 down 100

Since these previous readings the Brussels terror attacks could well had an impact on sentiment, particularly in the travel and hotel sector, which has driven a lot of the improvement in the French numbers. There is a fear that events in Brussels could well have knocked confidence in a sector that appeared to be on the cusp of a fragile recovery. Today's numbers could well be the first test of that sentiment.

Last month we saw the sector post its weakest reading since April 2013 at 52.7. Was this merely a blip or evidence of an element of caution as we head towards the summer vote? Expectations are for a decent end to the first quarter with an improvement to 54, from February's 52.7.