Wednesday 3 July 2019 10:34 am

UK service sector ‘close to stagnation’ as economy slows

The UK service sector came close to registering zero growth in June as Brexit uncertainty dented demand, according to data provider IHS Markit and the Chartered Institute of Procurement & Supply (CIPS).

Read more: UK construction sector suffers worst output in 10 years

The poor performance indicates the economy has slipped into contraction for the first time since July 2016, IHS Markit said.

The services purchasing managers’ index (PMI) – a closely-watched gauge of the health of Britain’s biggest sector – fell to 50.2 in June from 51.0 in May.

June’s figure was lower than economists’ predictions of 51.0. The service sector scraped into growth territory, with a score of under 50 indicating contraction.

It will worry policymakers after yesterday’s dismal construction PMI figures showed UK builders had their worst month in June since 2009. On Monday the manufacturing PMI for June hit its worst score for more than six years.

There are growing signs that the UK economy is slowing due to ongoing political uncertainty and global headwinds.

Howard Archer, chief economic adviser to the EY Item Club, said: “The June set of purchasing managers’ surveys fuel our belief that the economy likely contracted 0.2 per cent quarter-on-quarter in the second quarter.”

Today’s PMI score marks the continuation of a period of weakness for Britain’s service sector, which accounts for over 70 per cent of the UK economy. March saw a contraction, and the PMI has not risen above 51 since.

The survey data showed a decline in new business, while volumes of new work have now fallen for five of the past six months. Meanwhile managers reported a lack of new work to replace completed projects.

Chris Williamson, chief business economist at IHS Markit, said: “The near-stagnation of the services sector in June is one of the worst performances seen over the past decade and comes on the heels of steep declines in both manufacturing and construction.”

“The June reading rounds off a second quarter for which the surveys point to a 0.1 per cent contraction of GDP,” he said.

Duncan Brock, group director at CIPS, said there was “a dampened mood across the sector”.

He said that “if a general election is also thrown into the pot of political turmoil” then services could follow manufacturing and construction “into cutbacks, cost-cutting and reduced workforces”.

Andrew Wishart, UK economist at Capital Economics, said his organisation now estimates that the UK economy shrank by 0.2 per cent in the second quarter. It previously predicted a 0.1 per cent fall.

Read more: UK manufacturing sector records worst month in six years

“The fact the surveys have not picked up towards the end of the quarter, and global manufacturing is slowing, means the risk is that the economy fails to bounce back in third quarter,” he said.