Diamond Jubilee slows service sector growth

4 July 2012

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4 July 2012 | Adam Leach

Activity in the UK service sector increased in June but the rate of growth slowed as the Diamond Jubilee celebrations disrupted output levels, according to a report.

The Markit/CIPS UK Services PMI for June published today, reported a figure of 51.3 for June, where a number above 50 denotes growth. In May, the index recorded 53.3. Despite activity in the sector increasing, the rate of growth was slower than in May with the extended bank holiday weekend for the Queen’s jubilee celebrations identified as a key factor.

The report cited anecdotal evidence that suggested the market activity was reduced by the holidays. But some of the impact was offset by increased work to prepare for the London Olympics. Confidence in the sector dropped compared with the previous month, with respondents predicting a post-Olympics lull, and citing the Eurozone crisis and uncertainty over the direction of the UK economy as causes for concern.

Reduced demand, requests for discounts from clients and competitive pressures combined to produce a drop in the average output prices, while operating costs continued to rise and squeeze margins more tightly. Employment rose marginally for the month.

David Noble, CEO at CIPS, said: “The Jubilee weekend clearly led to a temporary slowdown in activity across the services sector as a whole. However, this one-off event does not disguise the fundamental uncertainties affecting the sector and the wider economy.”

Chris Williamson, chief economist at Markit, said: “The June data suggest that the sector grew by only around 0.2 per cent in the second quarter, though the quarterly rate of growth will have slowed close to stagnation in June. A steep drop in service providers’ expectations about the year ahead also casts a gloomy shadow on prospects for the sector in the long term.”

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