UK services expansion weakens in June as Brexit loomed

The odds on a summer interest rate cut narrowed today after data showed that growth in the UK's 'star' services sector slowed in June and optimism is at its weakest since December 2012.

The business activity index fell to 52.3 in June from 53.5 in May, matching April’s 38-month low, according to the Markit/CIPS UK services purchasing managers index (PMI). Any figure above 50 denotes expansion.

Activity in the sector – which accounts for 75 per cent of UK GDP – has risen every month since January 2013, but Markit said the index averaged just 52.7 in the three months to end-June, the weakest quarter since the start of 2013.

Chris Williamson, chief economist at Markit, said: “A further slowing, and possible contraction, looks highly likely in coming months as a result of the uncertainty caused by the EU referendum.

“However, with the June PMIs having already fallen into territory that would normally be associated with the Bank of England cutting interest rates, it’s unlikely that policymakers will wait for more data before unleashing additional monetary stimulus.”

Following the Brexit vote on 23 June, Bank of England governor Mark Carney hinted strongly at a further rate cut in the short term from historical lows of 0.5 per cent.

David Noble, chief executive at the Chartered Institute of Procurement & Supply (CIPS), branded the latest subdued figures from the services sector – which includes transport, retail, banking and IT – “a wake-up call to policymakers”

He added that “decisive action is necessary to prevent further slides in confidence and activity in the key services sector and, by extension, the overall economy”