Services sector data points to weaker growth in economy


Britain's economic growth is expected to slow in the third quarter after the powerhouse services sector grew at its weakest pace for more than two years in August, according to new figures.

The latest Markit/CIPS Purchasing Managers' Index (PMI) survey for the services sector, which accounts for more than three quarters of UK growth, showed a reading of 55.6 last month. A figure above 50 indicates growth.

Last month's reading is down from 57.4 in July and marks the worst performance since May 2013, driven by a sharp slowdown in new business.

Markitchief economist Chris Williamson said the services data, combined with PMI surveys from the construction and manufacturing sectors over the past two days, points to weaker growth overall in the economy in the three months to September.

He is forecasting growth of 0.5% in the third quarter, down from 0.7% in the previous three months.

This comes after the Markit/CIPS "all sector" PMI showed its weakest reading since May 2013, at 55.3 in August, down from 56.7 in July.

Mr Williamson said: "The three Markit/CIPS PMI surveys are collectively pointing to the weakest monthly expansion for over two years."

"As such, the economy looks set to grow by 0.5% in the third quarter, down from 0.7% in the three months to June, with the ongoing upturn almost entirely dependent on the service sector, aided by the far smaller construction sector," he added.

Mr Williamson said signs of easing growth in the wider economy, together with waning price pressures for firms, renewed expectations that interest rates will remain on hold until the "global economic picture becomes clearer".

The pound took a hit after the worse-than-expected services sector result, falling almost a cent to just under 1.53 US dollars and a cent lower to 1.36 euros.

Figures earlier this week showed a drop in the PMI reading for the manufacturing sector as exports fell for the fifth month in a row, blamed on the strength of the pound, weak sales in the eurozone and the slowdown in China.

Housebuilding helped drive a steady performance from the construction sector, although it was still lower than forecast.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "The overall weaker set of August purchasing managers' surveys for services, manufacturing and construction will likely fuel belief that the Bank of England will not be raising interest rates until well into 2016."

The disappointing services figures came after the slowest increase in new business across the sector since April 2013.

Employment in the services sector continued to rise in August and picked up pace from July's recent low, but firms increased staffing at the second-weakest pace since March 2014.

Cost pressures for services sector firms also eased for the third month running in August as the rate of inflation hit its weakest since January, thanks largely to falling fuel prices.

Despite this, services firms increased the prices they charge customers, but only fractionally, according to the survey.