UK services sector growth slows

The services sector grew at its slowest pace for nearly a year in June as austerity measures dealt a blow to confidence, it was revealed today.

The latest activity index from the Chartered Institute of Purchasing and Supply (CIPS) - where a score over 50 indicates growth - showed services output at 54.4 in June, down on the 55.4 seen in May and marking the weakest result since August 2009.

Fears of a double-dip recession after the British government's austerity measures also saw the steepest fall in confidence in the sector in the 14-year history of the Markit/CIPS survey.

CIPS said the data painted a "worrying picture" for the sector, which has now seen activity slow for three of the last four months.

The June survey result was weaker than expected and adds to concerns over the UK recovery following signs last week of a slowdown in the manufacturing sector.

Vicky Redwood, of Capital Economics, said: "The survey data continue to cast doubt on the ability of the private sector to weather the fiscal tightening when it begins in earnest next year."

Howard Archer, at IHS Global Insight, said the CIPS survey reinforced the case for interest rates to be held at their record low at this week's Bank of England meeting, despite mounting inflation fears.

But there was some good news from services firms in today's report, with new business levels picking up for the first time since February, albeit at a marginal rate.

Employment levels - which typically lag actual output levels - also grew for the third time since the beginning of March.

Economists are expecting wider GDP to have held up in the second quarter, although industry survey indications of a slowdown in the rebound suggest the second half of the year will be far tougher.

Paul Smith, senior economist at Markit, said: "While we continue to look for a 0.4% to 0.5% rise in GDP for the second quarter, this may well already represent a peaking in the recovery cycle.

"Confidence declined to the greatest extent in 14 years of data collection in reaction to the Government's austere emergency Budget, with concern expressed that the fiscal tightening could push the country back into recession."

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