Services sector growth slows
THE services sector grew last month at its slowest rate for 10 months, held back by subdued new business and a record monthly drop in confidence, a survey said yesterday.
The Markit/CIPS services PMI headline activity index fell for the third time in four months to 54.4 in June from 55.4 in May.
That was weaker than the consensus forecast and the lowest level since August 2009.
Sterling slipped to the day’s low against the dollar and the euro after the figures were announced.
“It is a shockingly weak result for the proponents of the idea of a V-shaped recovery in the UK,” said Tullett Prebon economist Lena Komileva.
“This is the beginning of a W-shaped scenario as the survey clearly shows the recovery momentum has peaked.”
Paul Smith, senior economist at survey compliers Markit, agreed that the index did point to some slowdown in growth heading into the second half of 2010.
“While we continue to look for a 0.4 percent to 0.5 percent rise in GDP for Q2, this may well already represent a peaking in the recovery cycle,” Smith said.
The index has been above the 50 mark which separates growth from contraction for more than a year. The consensus forecast had been for a reading of 55.0.
Britain’s June 22 emergency budget, which proposed swingeing government spending cuts and tax hikes, came in the middle of the June 11-28 survey period.
The budget’s austere measures, aimed at reining in the country’s largest peacetime budget deficit, had an impact on new business and confidence, with some fearing a return to recession, the survey found.
Weaker growth was put down to relatively small gains in new business, which remained subdued by historical standards despite stronger new orders growth than in May.
With the new coalition government just weeks old, financial and political uncertainty had held back some clients from committing to new contracts, some respondents said.
Business expectations fell 8.1 points to 64.0, a 15-month low and the single biggest month-on-month fall in 14 years of recorded data.
But levels were still firmer than at the height of the recession, with some bullish about the future.
The survey, which also showed average output prices rising at their strongest pace in more than a year-and-a-half, is the latest to highlight risks to Britain’s recovery.
Last Thursday, figures showed manufacturing had slowed from a 15-year high in June as export order growth all but ran out of steam.
The CIPS/Markit survey covered everything from cafes to banks and IT services, but does not include retail or public sector services.