The pace of growth in the Irish services sector continued to slow in October, as the impact of Brexit hit new export business.

The Investec Services Purchasing Managers Index slowed to 54.6 last month, its lowest level in more than three years, from 56.2 a month earlier.

The reports noted the new business component of the index was “a particular concern”, extending a trend of slowing growth to five months and hitting the softest rate of growth since May 2013. Export business was particularly badly hit, recording its worst growth rate in more than four years as Brexit and the impact of sterling’s weakness took its toll.

Weaker sterling is also being held responsible for a fall in employment in the travel, transport, tourism and leisure sector, its first in almost three years.

“While the rate of growth in demand may have moderated, it is still in positive territory and it is reassuring to see that the rate of growth in Backlogs of Work quickened to a five-month high in October,” the report said. “This prompted services companies to take on staff at a faster rate than had been recorded in September.”

Significant slowdown

Analysts warned the data pointed to “significant slowdown” in gross domestic product growth, and said it would have to revise down its projections for GDP growth in 2017. “The worrying trend in the Irish PMI figures is that the slowdown that has been evident for some time in the manufacturing sector is now feeding into the more domestic-facing services sector,” Davy analyst Conal Mac Coille said.

Input prices rose sharply in October, fuelled by a combination of higher salary payments, fuel costs and insurance. Profitability fell modesty as a result, with a slight increase in output charges insufficient to cover the rise.

But the report remained upbeat about future prospects for the sector, as the expectations index rebounded slightly and panellists increasingly predicted a rise in activity over the coming year.

Analysts at Davy took a more subdued view of things, warning that the composite index fell to 54.0 in October.

“The slowdown means the PMI surveys indicate that Ireland can no longer claim to be the fastest-growing economy in Europe,” Davy’s Mac Coille said. “We already know from the preliminary readings that Germany’s composite PMI was 55.1 in October and the euro area was 53.7.”