UK service sector weakens

City A.M. Reporter
Britain's dominant service sector grew at a much weaker pace than expected last month despite firms cutting prices and running down existing orders, a business survey showed on Wednesday.

The latest round of gloomy data will solidify expectations the Bank of England will restart its printing presses and support the economy with another round of quantitative easing when it meets on Thursday.

The Markit/CIPS purchasing managers' index (PMI) for the services sector, which accounts for around three quarters of output, sank to an eight-month low of 51.3 in June, below May's 53.3 and well shy of expectations for a more moderate easing to 52.8.

A reading over 50 signals growth and the index has held above the break-even mark for 18 months but Markit said the latest figures suggest the sector grew by only 0.2 per cent last quarter.

Worryingly for policymakers, once again some of that minimal growth was generated by fulfilling existing orders. The outstanding business index has been in contractionary territory for 14 of the last 15 months.

The services economy saw one of its worst months since the recovery began three years ago, with the June survey showing signs of growth stalling. The services PMI probably cements the case for further stimulus from the Bank," said Chris Williamson, chief economist at data compiler Markit.

The data comes after separate PMIs showed construction activity fell at its fastest pace in two-and-a-half years during June and that the manufacturing sector contracted for the second month running.

Markit said the June PMI surveys pointed to one of the weakest months in more than three years and suggested the British economy contracted 0.1 per cent in the last quarter.

Britain fell back into recession at the start of the year and economists see tepid growth ahead at best, with only a small bounce from London's hosting of the Olympic Games, leading to calls for the government and Bank to act.