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August 4, 2010    

UK services sector growth continues to slow

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by Kay Murchie

Growth in the UK’s closely-watched service sector slowed further in July - by the slowest rate in 13 months.

The latest index from the Chartered Institute of Purchasing and Supply (CIPS)/Markit PMI showed a reading of 53.1 in July, dipping from 54.4 in June.

Not only did this represent the lowest level since June last year, it was also weaker than forecasts of a flat reading.

However, any reading above the crucial 50 level indicates growth.

The survey raised fears about the strength of the economic recovery and following the figures, the pound fell almost half a cent against the US dollar.

Commenting on the figures, Paul Smith, senior economist at Markit, said: “Expectations about prospects for the coming year appear to have down-shifted … with reports of cancelled contracts and reduced enquiries adding to the sense that tough times lie ahead.”

Meanwhile, Simon Hayes, economist at Barclays Capital, added: “It’s perfectly reasonable to expect growth in the second half of this year to be slower than in Q2. Today’s PMI is reflective of that.”

The figures come in the same week that the CIPS/Markit manufacturing purchasing managers’ index (PMI) revealed UK manufacturing activity slowed further in July.

The index dipped slightly from 57.6 in June to 57.3 in July. However, the reading exceeded forecasts of 57.0 and is still close to May’s 15-year high of 58.1.

Meanwhile, yesterday the CIPS/Markit construction PMI index showed activity slowed considerably last month to a four-month low.

The index slumped to 54.1 in July from 58.4 in June – suggesting the sector may have peaked.

Again, the index is still above the crucial 50 level.

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