Slowdown in service sector adds to flurry of economic woe

Activity in the UK's linchpin services sector slid more than expected in June, rounding off a 'triple-whammy' of disappointing economic setbacks for last month.
The service sector spans pubs, hotels, finance and IT. Picture: Robert PerryThe service sector spans pubs, hotels, finance and IT. Picture: Robert Perry
The service sector spans pubs, hotels, finance and IT. Picture: Robert Perry

The Markit/Cips services purchasing managers’ index (PMI) reflected the weakest rise in new work in the sector since September 2016, with business optimism falling to its second-lowest since December 2011.

The survey cited “Brexit-related risk aversion”, economic uncertainty and the overhang of the June general election as reasons for the fall in activity. It followed recent similar disappointing news from the manufacturing and construction sectors.

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At 53.4, the activity index was down on the 53.8 recorded in May. with any figure over 50 denoting growth.

Chris Williamson, chief economist at IHS Markit, said: “A slowing in services sector growth completes a triple-whammy of disappointing PMI survey readings… it’s clear that the economy heads into the third quarter losing momentum.”

He said the economic headwinds came as households were facing rising inflation, “and the economy’s resilience is being tested”.

The services sector accounts for roughly three-quarters of the UK economy, covering areas such as retail, pubs, restaurants, hotels, finance, transport and IT.

Signalling the widespread easing of steam behind UK GDP, the all-sector IHS Markit/Cips PMI fell to 53.9 in June from 54.5 in May.

“[Services] survey respondents commented on subdued business and consumer confidence, alongside some instances of delayed decision-making around the election,” the services survey said.

Duncan Brock, customer relationships director at the Chartered Institute of Procurement & Supply (Cips), noted: “A creeping doubt appears to be the cause of [June’s] below par performance as the UK’s departure from the EU and the unpredictable political climate continues to impact on consumers and businesses alike.”

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UK productivity fell in the first three months of 2017, bringing an end to a run of growth, new figures show.

The Office for National Statistics said labour productivity as measured by output per hour fell by 0.5 per cent from the final quarter of 2016 to the first three months of this year. It was the first productivity fall since end‑2015.