Service sector grew at slower rate in September

The Markit/Cips services sector purchasing managers index (PMI) recorded 52.2 in September, down from August’s 53.7 but above the 50 no-change mark for the twenty-first successive month.

The survey found that a solid increase in volumes of incoming new business supported the latest rise in activity.

However, following readings below 50 suggesting contraction 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 September service sector PMI adds to evidence to suggest that the UK economy barely expanded in the third quarter.

“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 the official figures for the third quarter, due out later this month, are likely to show a stronger GDP rebound reflecting a technical bounce-back from second quarter weakness arising from extra bank holidays.

But he said the PMI provides an insight into the underlying trend of the economy, and - like the BCC survey - warns of near stagnation.

“Employment has also suffered in response to the slowdown, with September seeing one of the steepest cuts to service sector staffing since 2009. 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.”