Weak service sector knocks recovery hopes

Tim Wallace
Follow Tim
GROWTH in the all-important services sector slowed to an eight-month low in June, according to influential survey data published yesterday, undermining hopes that the economy could come out of recession in the second quarter.

Markit’s purchasing managers’ index (PMI) came in at 51.3 last month – down sharply from 53.3 in May, indicating a sharp slowdown in growth in the sector and dropping towards the 50 mark which indicates “no change” in output.

New sales rose at their slowest pace for 18 months, with the index sliding from 54.8 to 51.3, and the business expectations index also slowed sharply.

The intensifying Eurozone crisis and the lost day of work over the Jubilee are both to blame in part, said Markit.

The weak reading comes on top of this week’s gloomy manufacturing and construction PMIs, which showed output falling in both sectors in June – leading economists to predict another quarter of recession.

“These figures confirm our view that GDP is likely to have contracted in the second quarter,” said Nida Ali from the Ernst and Young Item Club.

“The decline in business confidence is also a genuine cause for concern. The experience of last autumn demonstrates how a deterioration in sentiment can rapidly affect activity, as it leads to companies placing investment and recruitment plans on ice.”

However, employment still continued to grow in June, though at a slower pace – that component of the index declined slightly from 52 in May to 51.7 in June.