The British service sector expanded at the slowest pace in eight months in June and the slowdown exceeded economists' expectations, as additional holidays and fragile demand weighed on activity. Business sentiment in the sector deteriorated to a six-month low, adding to growing concerns about the UK economic outlook, latest data showed.
Data compiled by Markit Economics Wednesday showed that the seasonally adjusted purchasing managers' index for the service sector remained above the non-change 50 mark for the eighteenth consecutive month. The index dropped to 51.3 in June from 53.3 in May, and came in below 52.9 expected by economics.
"Looked at alongside the other PMI surveys, which showed an ongoing downturn in manufacturing and a sharp deterioration in the construction sector in June, the services PMI probably cements the case for further stimulus from the Bank of England, with the three surveys now collectively down firmly into territory that has triggered action from the Monetary Policy Committee in the past," Markit economist Chris Williamson said.
The growth in new business wins weakened markedly during the month, owing to additional holidays around the Jubilee and reports of a fragile underlying demand environment. Input costs increased at a faster rate compared to the previous month, putting firms' margins under pressure. The price escalation was driven by higher energy and labor costs and supplier and travel prices.
Service providers increased their workforces for the seventh consecutive month in June to deal with the recent increase in workloads, data showed.
At the same time, the business expectations component showed that confidence deteriorated to the lowest level in six months, with the European sovereign debt crisis creating an air of uncertainty that led to business plans being put on hold.
The sharp deterioration in June's UK CIPS services survey seals the deal for more Quantitative Easing tomorrow, Vicky Redwood, Chief UK Economist at Capital Economics, said.
According to the economist, the sharp fall in the business expectations balance suggests that a more fundamental slowdown is underway. A weighted average of both the manufacturing and services surveys over the second quarter as a whole is consistent with flat GDP in Q2, Redwood noted.
by RTT Staff Writer
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