Service sector growth slows in UK
5th July 2010
Source: Financial Times
Britain’s services sector expanded in June at the slowest rate in 10 months, according to a closely watched index, amid signs of growing nervousness about the impact of government spending cuts on economic activity.
The Markit/CIPS UK services Purchasing Managers Index (PMI) for June was weaker than consensus forecasts among economists, showing a 54.4 headline reading, down from 55.4 in May. Economists had expected a more modest decline for June of 55.
Sterling sank to $1.5160 against the dollar after the figures were announced, compared with $1.5170 beforehand.
It was the weakest reading in the index since August 2009. Paul Smith, senior economist at Markit, said that fears about the effects of government spending cuts had led to the single largest recorded monthly fall in services providers’ confidence. Business expectations fell from a reading of 72.1 in May to 64.
The services PMI is particularly closely watched because it accounts for the greatest share of private sector business output.
“Worrying signs for the UK service sector appeared in June as growth slowed in response to another below-par increase in new business,” said Mr Smith. “Confidence declined to the greatest extent in 14 years of data collection in reaction to the government’s austere emergency budget, with concern expressed that the fiscal tightening could push the country back into recession.”
New business continued to grow – the sub-component rose to 53.4 in June from 52.8 in May – but economists noted that the pace of growth appeared to be slowing.
Another positive note came from a slight rise in the employment sub-component of the index, which rose to 50.1, just reaching the level at which it is seen to be expanding, from a reading of 49.7 the month before.
However, other components within the index point to weakness. Order backlogs fell to 46.7 from 48.1 and prices charged to customers were almost unchanged.
David Noble, chief executive of the Chartered Institute of Purchasing and Supply (CIPS), which co-sponsors the index, said there were signs that companies were increasingly hesitant to commit to expansion at a time of uncertainty. “June’s data painted a worrying picture for the UK services sector as confidence suffered a serious blow following the government’s emergency spending cuts,” Mr Noble said.
