Services sector slowdown completes 'triple-whammy' of negative results

Activity in the UK's services sector recorded a deeper-than-expected fall last month, sealing a "triple-whammy of disappointing" results from the UK economy.

The closely watched Markit/CIPS services purchasing managers' index (PMI) fell to 53.4 in June, down from 53.8 in May and below economists' expectations of 53.5.

A reading above 50 indicates growth.

The powerhouse industry, which accounts for around 78% of the UK economy, struggled for momentum as the inflows of new business sunk to a nine-month low.

It comes after manufacturing output drifted to its lowest level for three months in June, while the construction industry took a tumble due to a dearth of new work.

Chris Williamson, chief business economist at IHS Markit, said business optimism is suffering by intensifying political uncertainty from the General Election and the start of the Brexit negotiations.

He said: "A slowing in services sector growth completes a triple-whammy of disappointing PMI survey readings.

"Although the three PMI surveys are running at levels that are historically consistent with GDP growing by around 0.4% in the second quarter, it's clear that the economy heads into the third quarter losing momentum."

The pound was down 0.2% against the US dollar at 1.290 and 0.1% lower versus the euro at 1.137 following the update.

Despite the sector's stuttering performance, employment levels brightened last month as job creation lifted to a 14-month high in response to a growing backlog of work.

Rising costs continued to weigh on the services sector last month, but the rate of input price inflation was lower than the highs seen around the start of the year.

Duncan Brock, director of customer relationships at the Chartered Institute of Procurement & Supply (CIPS), said: "Strong growth in new orders and overall activity was destabilised by a reduction in business optimism, which fell to one of the lowest levels since 2011.

"This low-key tone was further dampened by growing competition amongst businesses, which placed intense pressure on profit margins.

"This meant persistent inflationary pressures and the impact of the weak pound were not passed on to consumers as firms absorbed higher costs for food, fuel and wages themselves."

It came as UK economic growth was confirmed at 0.2% for the first quarter, a marked slowdown compared with an expansion of 0.7% seen in the final three months of 2016.

British households faced a sustained squeeze on their finances at the start of the year as disposable incomes shrank and the amount set aside for savings hit record lows.

Howard Archer, chief economic advisor to EY ITEM Club, said the trio of weak PMI results suggest that an already fragile economy was faltering in June.

He added: "(The) weakened trio of June purchasing managers' surveys support the case for the Bank of England holding off from any near-term interest rate hike.

"This is reinforced by the slowdown in prices charged by services companies."

Last week, the Bank's governor Mark Carney hinted that interest rates could rise if wages firm and the economy is boosted by stronger business investment.

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