Business

UK services growth slows sharply, says PMI survey

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Media captionChris Williamson, Markit, said the decline was the largest for 10 years ago

The UK service sector slowed sharply in August, recording its weakest growth this year, an industry survey has suggested.

The Markit/Cips services purchasing managers' index (PMI) fell to 51.1 in the month, down from 55.4 in July. Any figure above 50 indicates growth.

The monthly fall was the biggest in more than a decade.

Confidence in the service sector's future also fell to its lowest level in a year.

Markit said respondents to the survey blamed a weakening in new orders and general uncertainty about the economy for the slowdown in overall activity.

New orders grew at their slowest pace since February.

Some respondents also pointed to the rioting that hit some cities during August as another reason for the weaker performance.

"The UK service sector suffered a steep deterioration of activity growth in August, with the drop in the headline index the worst since the foot-and-mouth crisis of 2001," said Paul Smith, senior economist at Markit.

"Although the slowdown may reflect a reaction to a solid expansion in July and minor impacts from riots and public disorder in early August, there can be little doubt that the underlying growth profile of the sector has weakened in recent months."

Analysts said they had expected a slowdown after July's jump in activity, but not of the magnitude recorded.

"It's bad and it's worse than expected, and I think there has been some underlying deterioration," said Ross Walker, UK economist at Royal Bank of Scotland.

Economic slowdown

Last week, Markit figures showed the manufacturing PMI falling to a 26-month low. The services data raises further concerns about the strength of the recovery, and increases the possibility that the Bank of England may pump more money into the economy, analysts said.

"The PMI surveys collectively pointed to a near-stagnation of economic growth in August, signalling an increased risk that GDP growth in the third quarter could be even weaker than the 0.2% rise seen in the three months to June," said Chris Williamson, chief economist at Markit.

Forward-looking indicators suggest the economy could weaken further, raising the prospect that it could contract in the current quarter, he said.

Growth in the UK economy was unlikely to exceed 1% in 2011 as a whole, well below the Office for Budget Responsibility's forecast of 1.7%, Mr Williamson added.

Mr Walker said the Bank looks closely at services PMI data and the disappointing August figure "certainly helps nudge them [towards more quantitative easing]".

"I'm not convinced we're going to see a policy change this month, but November certainly becomes quite interesting."

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