Slow start to third quarter for services

City A.M. Reporter
SERVICE sector output edged higher in July, marking a tepid start to the third quarter, official data showed yesterday.

Small rises were recorded in business services, finance and government activity.

The Office for National Statistics (ONS) said service sector output rose by 0.2 per cent in July after a 0.3 per cent contraction in June. Annualised, output was 1.3 per cent higher.

The economy as a whole grew by just 0.1 per cent in the three months to June -- largely due to the weakest service sector growth since the end of 2010, ONS data has showed.

Yesterday’s figures gave only limited hope of a pick-up. Output in the three months to July grew by 0.9 per cent, its biggest increase since November 2007, but that was due to a rebound in May from the slide in output caused by the previous month’s royal wedding.

July’s reliance on government spending to drive growth may also be a concern, given the determination of the coalition to slash the country’s hefty budget deficit.

Separately, the ONS also reported that productivity across all sectors of the economy flatlined in the second quarter, repeating the first quarter’s unchanged reading.

This pushed the annual rate of growth in output per worker into negative territory -- down 0.2 per cent on the year -- for the first time since the third quarter of 2009. ONS data released last month showed that Britain’s productivity had already fallen well below the average for the G7 group of advanced economies in 2010.

The slowdown in productivity growth was driven by a 0.5 per cent quarter-on-quarter fall in the productivity of the industrial production sector, which includes the North Sea oil and gas industry, where output has recently been suffering.

Unit labour costs remained in check, however, up just 0.3 per cent on the quarter after a 0.4 per cent rise in the first quarter of the year.