US services firms face heightened uncertainty
The prices index in the Institute for Supply Management’s services sector jumped to 70.7 in March, up from 63 the month before. Readings above 50 signal rising prices, and the latest reading marks a sharp acceleration; with the latest data being the largest one-month increase in 13 years.
Despite the pick-up in prices, the services sector continued to expand. The survey’s overall index came in at 54, dipping slightly lower from 56.1 in February and below the 55.4 economist expected. Out of the 16 industries included, 13 reported business growth, while retail, agriculture and public-administration saw declines.
The report also showed services employment falling to its lowest level since 2023, though this likely understates labour market strength given the strong rebound in job growth. Comments from businesses highlighted the Middle East conflict, as a major source of uncertainty, adding to the challenges they were already facing from import tariffs.
Eurozone retail sales dip
Meanwhile, soft retail data signals vulnerability in eurozone consumption. Eurozone retail sales slipped in February, underscoring the fragility of consumer demand ahead of the inflation surge triggered by the conflict in the Middle East. Retail volumes dropped 0.2% from January, where sales growth were flat, according to Eurostat. The decline was slightly worse that the 0.1% decline expected by economists.
The monthly fall in February was driven by a 0.5% fall in food, drinks and tobacco sales, while automotive fuel rose 0.7%, reflecting stockpiling before energy prices spiked in March following the closure of the Strait of Hormuz. Among the larger eurozone economies, Germany posted the sharpest declines, with retail volumes down 0.6%.
Despite the monthly weakness, retail volumes across the 21-nation bloc were 1.7% higher in February of 2025. In a year, food, drinks and tobacco increased by 1% for and 1.4% for automative fuel. The data reflects conditions just before the first US-Israeli strikes on Iran on February 28 and the subsequent energy-price shock.
Record inflation hits UK construction sector
Finally, record cost inflation slammed UK construction sector in March. British construction companies recorded the sharpest month-on-month surge in cost inflation on record in March, while the war in Iran also weighed in on new orders and business confidence.
The S&P Global’s UK Construction Purchasing Managers’ Index (PMI) showed input cost inflation jumping to 70.5, up from 59.5 in February, recording the largest increase since the series began in 1997 and reaching its highest reading since November 2022. New orders fell at their fastest pace since November last year and the recent improvement in expectations for future output faded. Business have now reported lower volumes of new work recorded since January 2025.
The headlined PMI remained below the 50.0 threshold for the 15th consecutive month, though it edged up slightly to 45.6 from 44.5 in February. Residential building continued to be the biggest drag on the sector with the house building index falling to 38.2. Meanwhile civil engineering and commercial construction performed somewhat better helped by a gradual pick-up in major infrastructure work.
This article does not constitute legal and, or financial advice and is being issued for information purposes only by Bank of Valletta plc, 58, Zachary Street, Valletta. Bank of Valletta is a public limited company regulated by the MFSA and is licensed to carry out the business of banking and investment services in terms of the Banking Act (Cap.371 of the Laws of Malta) and the Investment Services Act (Cap.370 of the Laws of Malta).
