Pace of recovery in service sector slackens in June

Published on Friday 3 July 2009 21:26

DOUBTS rose over the strength of the UK's economic recovery yesterday, with figures for the dominant services sector showing a slowing pace of growth.

The sector expanded for a second month in June but momentum slowed as new business contracted and firms stepped up job cuts. The headline Purchasing Managers Index eased to 51.6 from 51.7, disappointing expectations of a climb to 52.

The leap in May above the 50 mark, which denotes growth, raised hopes that the UK may be one of the first major economies to emerge from recession. But the slackening rate of improvement will fuel fears a sustained recovery is far from assured.

Of particular concern is that incoming new business contracted anew last month, albeit modestly, while employment in the sector declined at an increased rate.

The new business index fell to 49.7 in June from 51.8 in May – the first decline in the index since November.

Amit Kara, an economist with UBS, said: "It is somewhat concerning that new business has come off, but it's a lot better than a few months ago."

In an attempt to support sales, average output prices were cut for an eighth consecutive month in June. In contrast, average input prices picked up slightly on the back of higher fuel costs.

Howard Archer of Global Insight said: "Economic and financial conditions remain very difficult, and relapses in activity are highly likely. This reinforces our suspicion that sustainable economic growth will not develop until 2010 and then only gradually.

"The services sector is still under serious pressure from weak consumer expenditure on services, reduced business spending, ongoing serious financial sector problems and muted housing market activity."