Business

UK service sector growth 'slows'

A barber cutting a young man's hair Image copyright AFP

UK service sector growth slowed to its weakest rate for more than two years in August, a survey has indicated.

The latest Markit/CIPS service sector purchasing managers' index (PMI) fell to 55.6 last month from 57.4 in July.

Although the figure remained above 50, indicating expansion, it was the weakest reading since May 2013.

Markit estimated the UK economy would grow by 0.5% in the third quarter of 2015, down from growth of 0.7% in the previous three months.

Earlier this week, a survey of the manufacturing sector also found growth slowing, although the construction sector recorded a slight pick-up in activity.

"Even after allowing for usual seasonal influences, August saw an unexpectedly sharp slowing in the pace of economic growth," said Chris Williamson, chief economist at Markit.

"The services PMI came in well below even the most pessimistic of economists' forecasts and follows disappointing news of a stagnation in the manufacturing sector earlier in the week."

The Markit survey said the slowdown in the sector was mainly due to the slowest increase in new business since April 2013.

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Employment growth picked up from July, but it was still the second weakest reading since March 2014.

The survey found little evidence of price pressures in the sector, and Mr Williamson said this "suggests the inflation outlook is benign and is therefore likely to help tip the argument towards postponing any rate hikes until the wider global economic picture becomes clearer".

The data comes a week before the latest meeting of the Bank of England's Monetary Policy Committee, which sets UK interest rates.

UK CPI inflation was 0.1% in July and looks unlikely to rise in the foreseeable future, which has led some economists to push back their expectations for a rate rise to the middle of next year.

Surveys published earlier this week also indicated the weakest growth for more than two years at Chinese and US factories, as well as a softening in China's services sector.

Funding for Lending

Separately, the Bank of England said net lending to small businesses by banks and building societies taking part in its Funding for Lending scheme reached £490m in the three months to the end of June, compared with £400m a year earlier.

Launched in 2012, the scheme is designed to provide lenders with cheap access to finance to improve lending in the wider economy. They have drawn down £61.4bn of funding from the scheme since it launched.

The biggest net lenders to small businesses during the period were Lloyds Banking Group, which lent £527m, and Aldermore, which lent £127m.

The Bank said the improvement in net lending reflected a relaxation of credit conditions and growing confidence in the economy.

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