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UK Service Sector Growth Near 2-1/2 Year Low

UKServices 100515

British service sector growth unexpectedly slowed for a third consecutive month in September to its lowest level in nearly two-and-a-half years in September, hurt by a slump in new business growth, signaling that economic performance was soft at the end of the third quarter.

The Markit/CIPS UK Services Purchasing Managers' Index dropped to 53.3 from 55.6 in August, survey results from Markit Economics and the Chartered Institute of Procurement & Supply said Monday. That was in contrast to economists' expectations for an improvement in the measure to 56.

A PMI reading above 50 suggests expansion in services activity, which has grown steadily since January 2013. The latest score, however, was the lowest since April 2013.

The average reading for the service PMI over the three months to September was 55.4, the weakest since the second quarter of 2013.

"The survey data indicate that GDP growth slowed to 0.5 percent in the third quarter, but that the economy is entering the fourth quarter at a pace down to just 0.3 percent," Markit Chief Economist Chris Williamson said.

Sustained strong hiring in services and construction suggests that companies are generally expecting the slowdown to be short-lived, the economist noted.

"With the three PMI surveys collectively recording the weakest inflows of new business for two-and-a-half-years, there's a strong likelihood that the slowdown could intensify in coming months," Williamson added.

New business growth eased for the fifth time in six months to its lowest level since April 2013. However, it remained in line with its survey average.

Slower growth was partly due to hesitation among clients in placing new contracts, owing to global economic uncertainty. The index for business expectations dropped to a 13-month low, yet signaling solid growth.

Backlogs continued their two-and-a-half year long rising trend, but increase was modest.

Meanwhile, employment grew at the strongest pace since June, rising for the thirty-third consecutive month. Inflationary pressures remained subdued with input price inflation climbing slightly and output prices increasing marginally.

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