The engine of Britain’s economic growth slipped a gear in August after the services sector expanded at its slowest rate for two years.
In another sign that the UK economy is losing momentum, the Markit/Cips survey of the services sector, which generates more than three-quarters of Britain’s income, found a broad slackening in activity and a decline in the confidence of businesses in the outlook for the rest of the year.
Coming quickly on the heels of gloomy manufacturing figures, the latest health check of the services industry was worse than analysts had expected.
The Markit/Cips purchasing managers’ index (PMI) of services activity dropped to a 27-month low of 55.6 from 57.4 in July. Readings above 50 signal growth in activity compared with the previous month, and below 50 contraction.
The consultancy Capital Economics said the slowdown was likely to be a blip before momentum picked up again in the autumn as falling oil prices lifted household disposable incomes and eased price pressures on businesses.
But the fall in confidence was blamed by some analysts on the turmoil in world markets and the protracted slowdown in China, which has become a major export market for advertisers and other services firms. Without China as the motor for global trade, some economists fear the UK’s recovery will falter.
Chris Williamson, chief economist at the financial data provider Markit, said even after allowing for usual seasonal influences, August saw an unexpectedly sharp slowing in the pace of economic growth.
“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. Although construction industry growth remained resilient, the three PMI surveys collectively are pointing to the weakest monthly expansion since May 2013,” he said.
Williamson said that a slower pace of expansion across the economy would take the pressure off the Bank of England to raise interest rates in the near future.
Threadneedle Street has signalled that it is ready to beginning raising rates for the first time since 2007 next February, a move many economists now believe will be delayed until at least the summer of 2016.
