UK service sector activity suffers sharp drop in August

| September 5, 2011

Growth in the UK’s closely-watched service sector slowed in August, figures have revealed today.

The Chartered Institute of Purchasing and Supply (CIPS)/Markit purchasing managers’ index (PMI) slowed at the fastest pace in over a decade to 51.1 in August from July’s reading of 55.4.

The fall represented the second largest on record and was much worse than the 54.0 reading expected by analysts.

However, the index continues to remain above the crucial 50 level, which separates growth from contraction.

The survey covers businesses making up around 40% of the economy, but does not include retailers or the public sector.

Paul Smith, Markit’s Senior Economist, comments: “There can be little doubt that the underlying growth profile of the sector has weakened in recent months.

“The UK service sector suffered a steep deterioration of activity growth in August, with the drop in the headline index the worst since the foot-and-mouth crisis of 2001.”

Some attributed the fall to the rioting that hit some cities during the month.

Meanwhile, businesses’ expectations for the future were the weakest in a year, with the relevant sub-index dipping to 65.1 last month from July’s 67.3 in July.

Furthermore, staffing levels in the sector continued their downward trend with this index posting the lowest reading since January.

Meanwhile, the index comes shortly after figures revealed UK manufacturing activity contracted at the fastest pace in more than two years in August.

The closely-watched CIPS/Markit manufacturing PMI fell to 49.0 last month from an upwardly revised 49.4 in July.

The latest figure means the index remains below the crucial 50 mark for the second consecutive month.

The further slowdown was attributed to a sharp fall in demand for exports.

Meanwhile, growth in the UK construction industry also weakened in August.

The PMI dipped to 52.6 in August from July’s reading of 53.5 – however, the figure was in line with expectations.

Construction accounts for around 6% of Britain’s economic output.

All sets of figures will raise concern that the economic recovery is stalling and will reinforce expectations that the Bank of England will leave interest rates at the record low of 0.5% later this week.

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