EVIDENCE that the UK is struggling to clamber its way out of renewed recession piled higher yesterday when a survey revealed the dominant services sector had recorded its weakest monthly movement in activity since snow-disrupted December 2010.
The Chartered Institute of Purchasing and Supply's business activity index for UK services dropped from 51.3 in June to 51 in July on a seasonally-adjusted basis, dashing City hopes that it might show a modest improvement.
While it remained above the level of 50, which is calculated by CIPS to separate expansion from contraction, the July index level was the weakest since a reading of 49.7 for December 2010.
Excluding that reading, which reflected severe disruption from Arctic weather conditions, the July reading for services activity was the weakest since that of 48.7 for April 2009.
CIPS's services surveys have painted a brighter picture of this sector's performance than official gross domestic product (GDP) data in recent times.
The Office for National Statistics said UK GDP fell 0.7% quarter-on-quarter in the three months to June, with services output down 0.1%. This was the third straight quarterly fall in GDP reported by the ONS.
Howard Archer, chief UK economist at consultancy IHS Global Insight, said: "Weak news on the UK economy is pretty relentless at the moment.
"Given the dominant role of the services sector in the economy, the softer purchasing managers' survey for July, showing expansion at a 19-month low, is a serious blow to hopes that the economy can bounce in the third quarter after dismal GDP contraction of 0.7% in the second quarter."
The all-sector purchasing managers' index, calculated by CIPS' survey compiler Markit and covering services, manufacturing and construction, fell from 51.1 in June to 49.5 in July.
Chris Williamson, chief economist at Markit, noted this was the first time the all-sector PMI had been below 50 since April 2009.
A survey published by CIPS this week showed UK manufacturing output fell at its fastest pace for three years in July.
CIPS cited the impact of temporary factors such as poor weather in the first half of July and in some cases disruption in the run-up to the London Olympics, in explaining the poor showing of the services sector in July. However, it also noted that the tough economic climate had depressed service sector growth last month.
CIPS cited reports from companies that "the operating environment remained challenging" and that "uncertainty amongst clients had led them to defer making business decisions".
Mr Archer said: "While there were reports that poor weather early on in the month and pre-Olympic disruptions hindered services sector activity in July, the underlying tone of the report is undeniably soft.
"Given that services activity would have been hit in June by the two days public holiday, there should have been some bounce-back effect in July."
Vicky Redwood, chief UK economist at consultancy Capital Economics, said: "Even leaving aside temporary factors, the big picture is the economy is still struggling to grow ... we continue that GDP will contract in 2012 as a whole by about 0.5%."
On a more positive note, CIPS' survey showed a continuing rise in services employment in July.
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