Service jobs cut, sending signals of a slowdown in UK recovery

Britain’s powerhouse service sector shed jobs for the first time in almost a year last month as growth slowed, casting more doubt on the chances of a sustained recovery.

The Markit/Cips purchasing managers’ survey found firms reporting an increase in orders attributed to “a natural bounce in market activity following an Olympics-related lull”, as well as a modest improvement in underlying demand.

But many companies remained cautious and chose not to fill vacancies as they arose, causing employment in the sector to fall for the first time since last November.

The index for the services sector recorded 52.2, down from August’s 53.7 but above the 50 no-change mark for the 21st successive month.

Following negative readings in the manufacturing and construction sectors and a report by the British Chambers of Commerce (BCC) this week saying confidence and investment levels were falling, the data suggests that the UK economy has not yet returned to full health after nine months of recession.

Chris Williamson, chief economist at Markit, said the UK economy “barely expanded” in the third quarter.

“Gross domestic product (GDP) is likely to have grown by perhaps 0.1 per cent as modest growth of services activity was offset by a slight drop in construction sector output and a steeper decline in manufacturing, according to the PMIs,” he said.

Official figures due out later this month are likely to show a stronger rebound from second quarter weakness arising from extra bank holidays, Williamson said. The PMI provides an insight into the underlying trend of the economy, and – like the BCC survey – warns of “near stagnation”.

He added: “With the mini-boom in the labour market having now come to an end, it seems inevitable that unemployment will start to rise again. Hopes are therefore pinned on the recent upturn in new orders being sufficiently strong and sustained to bring about improved growth of business activity and renewed hiring in coming months.”

Howard Archer, chief UK economist at IHS Global Insight, said official figures are likely to show that GDP grew by around 0.6 per cent in the third quarter, but the economy will find it “very hard” to grow by more than 0.2 per cent in the current three-month period, and it could struggle to achieve even that.

Archer said the underlying weakness makes it likely that the Bank of England will give the economy a further helping hand before the end of the year. He expects the monetary policy committee will hold its fire at today’s meeting but re-open the money taps once the current round of quantitative easing comes to an end in November.