Services sector could be about to shrink as growth stagnates

 
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The services sector, the largest part of the UK economy, could face recessionary conditions (Source: Getty)

The UK's services sector, which makes up most of the UK economy, is on the brink of recession according to business advisers BDO.

Businesses within the services sector now say that growth in their order books has stagnated, meaning that the BDO Index is hovering around the 95 level which indicates it could be about to shrink.

The index has displayed a downward trend since August 2015, and was exacerbated bu the result of the EU referendum. The current level is the lowest since June 2013.

Read more: Spending growth falls to 10-month low as inflation spikes

Yet the manufacturing sector tells a different story, as the sub-index for the sector rose last month to 97.7.

Overall UK business confidence also remained undented, as BDO's optimism index continues to rise each month, now sitting at an 18-month high of 102.8.

But BDO called for more help from government in order to prevent the economy from grinding to a halt.

Read more: Political consensus on more employment red-tape risks hitting UK economy

BDO partner Peter Hemington said: “The new government should be quick to announce immediate pro-business measures to ensure we aren’t left disappointed with an increasingly stagnant economy as we go through the rest of the year.”

BDO's findings were reflected in another report released today from Lloyds Banking Group, which showed slowed business activity across the UK in May.

England’s business activity index was 55.1 in May, down from April’s four-month high of 57.1 but still well above the 50.0 mark, which signifies growth in business activity.

London's business activity hit a 3-month low, as growth slowed from 56.9 in April to 55.7 in May.

Read more: London business confidence rebounds after a year in the doldrums

Gareth Oakley, managing director of SME banking for Lloyds said: “Although there were some signs that political uncertainty and a squeeze on household budgets from rising prices had dampened growth rates, businesses across England and Wales reported further increases in both output and new orders in May.

“Inflationary pressures still remain but the survey’s price measures have at least come down from their recent highs which will help businesses manage their costs.”

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