Weak UK services growth
points to Q2 slump
BRITAIN’S dominant services sector endured one of its worst months in the past three years in June despite cutting prices, a business survey showed on Wednesday, suggesting the country stayed in recession in the quarter that ended last weekend.
The latest bout of gloomy data solidified expectations the Bank of England will restart the printing presses and support the economy with another round of bond purchases when it meets on Thursday. The Markit/CIPS Purchasing Managers’ Index (PMI) for services, which account for around three quarters of the country’s economic output, sank to an eight-month low of 51.3 from May’s 53.3, despite firms cutting prices and running down existing orders. “The services economy saw one of its worst months since the recovery began three years ago, with the June survey showing signs of growth stalling.
The services PMI probably cements the case for further stimulus from the Bank,” said Chris Williamson, chief economist at data compiler Markit. The reading, the second lowest since April 2009, was well shy of expectations for a more moderate easing to 52.8 but held above the 50 mark that signifies growth for the 18th month. Separate PMIs earlier showed construction activity fell at its fastest pace in twoand- a-half years during June and that the manufacturing sector contracted for the second month running.
Markit said the June surveys pointed to one of the weakest months in more than three years and suggested the British economy contracted 0.1 percent in the second quarter. Britain fell back into recession at the start of the year and economists see tepid growth ahead at best with only a small bounce from London’s hosting of the Olympic Games, leading to calls for the government and Bank to act.
Worryingly for policymakers, once again some of June’s minimal services sector growth was generated by fulfilling existing orders. With the slowdown becoming entrenched, firms were less optimistic about the future and the business expectations index, while remaining positive, fell to a six-month low. “The decline in confidence is also a genuine concern.
The experience of last autumn demonstrates how a deterioration in sentiment can rapidly affect activity, as companies place investment and recruitment plans on ice,” said Nida Ali at Ernst & Young ITEM Club. Firms were concerned about Europe, Markit said, where a two-and-a-half year debt crisis shows no sign of abating.
Britain’s Conservative-led coalition government has focused on cost-cutting to reduce a record budget deficit, but it recently introduced measures to get credit flowing through the economy and vowed to do more to boost house building and infrastructure spending. Many economists think proper fiscal stimulus might be needed, however.