Trouble ahead? Pound falls as service sector disappoints in June

Emma Haslett
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Markit suggested weak consumer sentiment was to blame for services' disappointing performance (Source: Getty)

An underwhelming performance by the services sector created a hat trick of disappointments for economists in June.

Markit's purchasing managers' index (PMI) for the UK's largest sector fell to 53.4 in June, figures published today showed, down from 53.8 in May and slightly lower than expectations of 53.5. Any figure below 50 denotes a contraction.

Sterling was 0.1 per cent lower against the dollar this morning, at $1.2905, after similarly disappointing performances by the UK's two other major sectors. Figures published yesterday showed the construction PMI fell from its 17-month high in June, while the pound was hit on Monday after the manufacturing sector undershot expectations by more than two points.

Read more: Shop price inflation set to hit consumers as retailers pass on costs

Today Markit said the slowdown was due to the weakest upturn in new work since September 2016, with survey respondents citing subdued business and consumer confidence. Firms were the least optimistic about their growth prospects since July 2016, although there was a "slight pick-up" in the pace of job creation.

The figures also suggested inflation was taking a toll on the sector, with a "sharp and accelerated increase in average cost burdens".

“A slowing in services sector growth completes a triple-whammy of disappointing PMI survey readings. Although the three PMI surveys are running at levels that are historically consistent with GDP growing by around 0.4 per cent in the second quarter, it’s clear that the economy heads into the third quarter losing momentum," said Chris Williamson, chief business economist at IHS Markit.

“With business optimism having been hit by the intensification of political uncertainty following the general election and commencement of Brexit negotiations, at the same time that households are battling against rising inflation, the indications are that the economy’s resilience is being tested," he added.

“The continued rise in inflation and the general uncertainty is denting consumer confidence which may impact on demand," added Chris Sood-Nicholls, head of global services at Lloyds Bank Commercial Banking.

"The question remains as to how much businesses will be looking to invest during the rest of the year to help stimulate demand."

Read more: Weak government after election shock to dent British economic growth

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