Services sector hits lowest level yet for 2011

5 September 2011

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5 September 2011 | Adam Leach

Activity in the UK services sector last month grew at its slowest rate so far this year, dropping more drastically than the index recorded following the collapse of Lehman Brothers.

The Markit/CIPS UK Services PMI for August recorded a score of 51.1 for the month as it fell from July’s figure of 55.4. The drop is the second most extreme since the survey began in July 1996, beaten only by a drop in autumn 2001 after the foot-and-mouth crisis.

The rate of growth, which was the slowest since December 2010, was blamed on weak demand for new business and economic uncertainty. There was also a limited number of reports from some companies that rioting in the UK seen earlier in the month had an adverse affect on activity.

The volume of incoming new orders rose, but at the lowest pace since February, business confidence dropped to the lowest of the year and employment in the sector fell. The one positive finding was that while input costs remained elevated, the rise in prices was the slowest since November last year.

CIPS CEO David Noble, said: “The eye-watering decline in this month’s services PMI figures shows the full impact of current weaknesses and instability in the wider economy. As the sector clings on to growth, purchasing managers are also suffering from a wavering trend in new business. Anarchy on the streets in some parts of the UK during August also didn’t help to stave off the loss in momentum since July.”

Paul Smith, senior economist at Markit, said: “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.”

The UK services sector includes transport and communications, financial intermediation (where funds are channelled between lenders and borrowers indirectly), business services, personal services, hotels and restaurants and IT.

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