Adam Leyland 5 Jul 2017 05:20pm

UK services sector growth slows again in June

A “triple whammy” of disappointing Purchasing Managers’ Index (PMI) survey readings has seen growth in the sector fall again in June, with business optimism dropping to its second-lowest level since December 2011

The IHS Markit / Chartered Institute of Procurement & Supply (CIPS) PMI Index fell to 53.4 last month, a fall from 53.8 in May. The figures are below the consensus forecast from City economists of 53.5.

Business confidence and decision-making took a hit as a result of last month’s general election, the study found. However, it also noted the figures still showed the 11th consecutive month of expansion.

The slowdown in business activity growth was linked to a softer rise in incoming new work across the service economy. Furthermore, the latest increase in new work was the weakest for nine months.

The study said anecdotal evidence cited Brexit-related risk aversion and “heightened economic uncertainty” as key reasons for clients holding back spending.

Service sector firms were also the least upbeat about their year-ahead growth prospects since July last year. However, they reported a slight pick up in the pace of job creation, to its fastest for 14 months.

The figures represent another month of slower growth in the services sector. Last month IHS Markit and the CIPS found that business activity in the services sector rose at its weakest pace since February this year, following a four-month peak recorded in April.

The fall was due to a slowdown in new orders growth, which was a result of squeezed household budgets and delayed decision-making among clients ahead of last month’s election.

Furthermore, a study by BDO last month warned that the services sector was on the edge of recession.

It found that the output index for the sector – which measures how businesses’ order books will fare over the next three months – fell from 95.3 in April to 95.0 in May, the lowest level it has been at since June 2013.

However, economic outlooks have not all been doom and gloom in recent months.

In May ICAEW's UK Confidence Monitor found that confidence among firms had increased for the first time in 12 months.

Though it warned that businesses remained reluctant to make long-term growth plans, it said that optimism had moved into positive territory during the second quarter of the year to 6.7, from -8.7 in Q1. 

Responding to today's figures, Chris Williamson, chief business economist at IHS Markit said, “A slowing in services sector growth completes a triple whammy of disappointing PMI survey readings.

“Although the three PMI surveys are running at levels that are historically consistent with GDP growing by around 0.4% in the second quarter, it’s clear that the economy heads into the third quarter losing momentum.”

Williamson added that the resilience of the UK economy is being tested as households battle against rising inflation.