UK service sector growth slows slightly but still strong at 60.3

The UK services sector is still expanding in September, with a strong PMI reading of 60.3. Although in line with expectations this is a bit of a slowdown from August's reading of 60.5.

The sector's strong performance marked the end of the best quarter since Q2 1997, with analysts estimating UK economic growth for the third quarter at a rate between 1.1 per cent and 1.3 per cent.

Growth in sales continues and September's increased activity was supported, like August's, by significant gains in incoming new business with a pick up in new orders, owing to increasing business confidence.

Despite the marginal slow in growth, increase in work means there will be a rise in employment in the sector. This could well lead, says chief economist at World First, Jeremy Cook, to "job growth improve at a faster rate than July’s 6 year high".

The question of where growth within the sector will come from is, says cook, one caveat to the good news:

Banks and business-to-business services are benefiting from the housing market and corporate activity improvements respectively, however, consumer-facing companies are not progressing at the same rate. The pressure on consumers is the obvious factor here and will continue as wage negotiations fall short of price increases.

Christian Schultz of Berenberg notes that "this is a consumer-led recovery" with more domestic-orientated services going from strength to strength relative to more export-orientated services. But, he points out, households' real wages are still not rising and, with it not possible to reduce savings rates perpetually, "the current heady pace of the recovery may not be sustained."