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UK services activity suffers ‘eye-watering’ decline in August

(Update) Activity in Britain’s dominant services sector plunged at its fastest rate in a decade last month, further heightening concerns over the health of the UK economy.

 
UK services activity suffers ‘eye-watering’ decline in August

Activity in Britain’s dominant services sector suffered its biggest fall in a decade last month according to a key survey, heightening concerns over the health of the UK economy.

The Markit/CIPS services PMI index, a measure of activity growth as reported by purchasing managers at companies, slumped to 51.1 in August from 55.4 in the previous month. Economists polled by Reuters had expected a reading of 54.

This is the index's lowest level in 2011 so far. Although, as with other PMI surveys, a reading over 50 indicates expansion, there was concern that the index had fallen so swiftly, declining more than it did in the slowdown after the collapse of Lehman Brothers in autumn 2008.

In the wake of the data, sterling eased 0.11% versus the dollar to $1.614. The FTSE 100 extended its losses to trade 112 points, more than 2% lower, at 5,180.

Markit said respondents to its survey had cited weak levels of new business, general economic uncertainty and, in some cases, the impact of the riots for the contraction. Business confidence fell to a year low with a further drop in service sector employment as companies continued to avoid replacing staff who left.

While the slowdown reflect a reaction to July’s surprisingly strong figure, ‘there can be little doubt that the underlying growth profile of the sector has weakened in recent months,’ said Paul Smith, senior economist at survey compilers Markit.

David Noble, chief executive at the Chartered Institute of Purchasing & Supply, added: ‘This eye-watering decline in this month’s Services PMI figures shows the full impact of current weaknesses and instability in the wider economy.’

And Howard Archer, chief UK economist at IHS Global Insight, warned that the survey ‘really rings the growth alarm bells.’

‘The very sharp slowdown in activity in services sector in August indicated by the purchasing managers’ survey is a particularly significant blow to the economy given the sector’s dominant role,’ he said.

Branding the data ‘hugely disappointing’ survey, Archer continued: ‘The only crumb of comfort is that it shows services activity is still expanding.’

Joost Baumont of ABN Amro told Reuters: 'A closer look at the details shows that there was not any bright spot to be found in the report. The outstanding business and incoming new business sub-indices posted marked falls, while the employment sub-index fell further below the 50-mark, another sign that the labour market is weakening.'

The index reading follows shockingly poor US employment data on Friday. These showed the rate of new jobs being created had stalled, intensifying fears of a global recession or, at best, a period of very low economic growth around the world.

2 comments so far. Why not have your say?

Chris Clark

Sep 05, 2011 at 18:56

How much of the long, long trail of negative news headlines leads the forecasts?

There's been months of it, especially with the banks lobbying over ring fencing dooming the UK economy about every day and causing share price swings.

In every case I've ever seen, bad financial news causes eCommerce web sales to decline, and after 10 days of peace and quiet, sales are normal again.

report this

William Bishop

Sep 05, 2011 at 19:09

I expect that many of the survey answers were provided by some junior person while more senior ones were on holiday. For that kind of reason, it is rarely advisable to form firm opinions on the basis of the numbers reported for August.

report this

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