Services sector recovery loses momentum

3 September 2010

3 September 2010 | Lindsay Clark

Growth in the UK services sector slowed to its lowest rate since the end of the recession, indicating that the recovery seems to have run out of steam.

Figures out today in the Markit/CIPS Services PMI show the headline index from the report – while sustaining the 16th successive month of growth – dropped to 51.3. This is a weaker performance than July’s 53.1, but crucially above the 50 no-change mark. This is the slowest increase in activity in the current growth sequence.

CIPS CEO David Noble said: “Stuttering growth is causing considerable disquiet in the services sector and doesn’t bode well for employment levels. Though it’s tempting to talk about a double-dip, it’s too soon to predict a return to recession. But, the lowest growth rate in the services sector for over a year does seem to reflect what’s been happening elsewhere in the economy.” 

Based on a model of three PMI surveys, Chris Williamson, chief economist at Markit, predicted GDP would rise by half a per cent in the third quarter, making the second quarter’s 1.2 per cent rise the peak in the recovery cycle.

“Disappointingly, the rate of job losses in private sector service companies has picked up sharply again to the highest since last October as companies remain worried about the outlook,” he said. “Confidence about the year ahead has failed to recover from June’s record drop, with public sector spending cuts and the looming VAT hike in January is creating uncertainty over the future direction of the economy.”

“While a double-dip recession remains unlikely, the survey suggests the risk has increased and growth looks set to be slow and choppy going forward,” said Williamson.

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