The slowing global economy and uncertainty over the EU referendum weighed on Britain’s services sector in March, in the latest sign that the UK recovery is losing momentum.

A closely watched survey suggested that progress in the UK’s dominant sector came to a virtual standstill last month as companies weighed up a combination of risks, including the looming prospect of an exit from the EU.

The sector, which includes restaurants, bars and hotels, experienced the weakest quarter in three years during the first three months of the year, according to the Markit/Cips PMI index.

James Knightley, a senior global economist at ING, said concerns over the possibility of Britain leaving the EU were weighing heavily on the services sector, which accounts for about three-quarters of the UK economy.

“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,” he said. “This means that investment and labour hiring plans will be more limited.”

The March services PMI was the latest indication that economic growth has slowed since the beginning of the year.

Chris Williamson, the chief economist at Markit, said that along with equivalent surveys for the manufacturing and construction sectors, the report suggested that the economy grew by 0.4% in the first quarter, compared with 0.6% in the fourth quarter of 2015.

“Business confidence remains in the doldrums as concerns about the global economy continue to be exacerbated by uncertainty at home, with nerves unsettled by issues such as Brexit and the prospect of further government spending cuts announced in the budget,” he said.

The report showed a slight improvement in overall activity in March. The headline index edged up to 53.7, from 52.7 in February. Any figure above 50 indicates expansion.

However, confidence among companies operating in the sector dipped and new business growth slowed.

Williamson said growth was likely to slow further. “It seems unlikely that March’s upturn in the pace of growth represents the start of a longer term upswing,” he said. “In contrast, the survey data suggest growth is more likely to weaken further in the second quarter.”

Williamson said the prospect of a rise in UK interest rates seemed “a long way off”. The Bank of England has held rates at 0.5% since March 2009.