UK services sector's weak growth suggests economy 'at risk of stalling'

Will Green is news editor of Supply Management
3 March 2016

Growth in the UK services sector has slowed to a three-year low against a backdrop of weakening new orders and economic uncertainty.

The Markit/CIPS UK Services Purchasing Managers’ Index fell to 52.7 in February, down on 55.6 in January and against the no-change position of 50.

Growth in total business activity and new orders were the weakest since March 2013, leading firms to raise employment at the slowest pace in two-and-a-half years.

However, the volume of outstanding business rose, following a decline in January, and the sector’s 12-month outlook improved to a three-month high, though it remained weaker than the long-run average.

Firms commented that rising levels of global economic uncertainty had resulted in delays in clients placing new orders.

Average input prices rose in February, linked mainly to salaries, but the rate of inflation remained historically weak amid reports of lower fuel and energy prices.

Subdued cost pressures and competition for business had a limiting effect on the charges set by firms.

David Noble, group CEO, CIPS, said: “A maelstrom of sluggish global economic performance and relatively subdued business confidence resulted in a downbeat message in February. The combined pressures from uncertainties around the EU referendum, China and the Middle East crowded out any strong optimism for the future.”

Chris Williamson, chief economist at Markit, said: “The drop in the services PMI completes a triple whammy of disappointing survey news for February.

"However, the slowdown in services is arguably the most worrying, as the sector has provided an important support to UK economic growth in recent years, not least due to its sheer size. The survey suggests the economy’s main engine of growth is at risk of stalling.”

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