GROWTH of the UK’s dominant services sector slowed last month to its weakest pace for more than two years, a key survey has revealed, raising further questions over the sustainability of the country’s economic recovery.
The weak services survey, published by the Chartered Institute of Procurement & Supply, prompted warnings from economists that UK growth is likely to slow in the current quarter from an around-trend 0.7 per cent in the three months to June.
Chris Williamson, chief economist at CIPS survey compiler Markit, projected in the wake of the services survey that the UK economy would grow by about 0.5 per cent in the third quarter. This would be equivalent to an annualised pace of two per cent, well adrift of a long-term average annual growth rate put at about 2.75 per cent by Bank of England Governor Mark Carney. This projection is also based on CIPS’s surveys of the manufacturing and construction sectors, also published this week.
CIPS’s business activity index for the UK service sector fell from 57.4 in July to 55.6 in August on a seasonally-adjusted basis. While still well above the level of 50 that is deemed to separate expansion from contraction, the August index reading signals the weakest growth in the services sector since May 2013. The survey also shows a slowing of new business growth in the services sector.
And a composite activity index from CIPS’s services, construction and manufacturing surveys points to the weakest combined monthly growth for 27 months.
Howard Archer, chief UK economist at consultancy IHS Global Insight, said: “While far from disastrous and still pointing to clear services expansion, this is undeniably a much softer report than expected which suggests that the UK economy is struggling in the third quarter to match the 0.7 per cent quarter-on-quarter expansion achieved in the second quarter.”
Mr Archer said IHS Global Insight was cutting its forecast of third-quarter UK growth to 0.6 per cent.
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