Activity in UK’s service sector almost stalls in August

The report from IHS Markit and Chartered Institute of Procurement & Supply (CIPS) showed on Wednesday that activity growth in the services sector of the UK’s economy lost momentum during August and remained subdued in comparison to the trends seen over much of the past decade.

According to the report, the Markit/CIPS UK Services Purchasing Managers' Index (PMI) fell to 50.6 in August from 51.4 in July, signaling only a marginal expansion of service sector output. Economists had forecast the indicator to edge down to 51. The 50 mark divides contraction and expansion.

The latest reading was the lowest since June and well below the long-run average.

According to the report, softer growth of service sector output largely reflected a slower increase in new business intakes during August amid Brexit-related uncertainty and subdued corporate spending. Elsewhere, backlogs of work were reduced for the eleventh successive month, which represents the longest period of decline since 2011/12, while growth projections dropped to the lowest level since July 2016 and the employment rose at the slowest pace since the current period of expansion began in May. On the price front, input price inflation accelerated to its strongest since January, while prices charged by service providers increased at the slowest pace for just over three years.

The UK All Sector Output Index, a weighted average of the UK Manufacturing Output Index, the UK Total Construction Activity Index and the UK Services Business Activity Index, came in at 49.7 in August, down from 50.3 in July. The decline in the UK private-sector output reflected a sharp drop in construction work and another fall in manufacturing production, which more than offset a marginal rise in service sector activity.

Chris Williamson, Chief Business Economist at HIS Markit, which compiles the survey, noted: "After surveys indicated that both manufacturing and construction remained in deep downturns in August, the lack of any meaningful growth in the service sector raises the likelihood that the UK economy is slipping into recession. The PMI surveys are so far indicating a 0.1% contraction of GDP in the third quarter.”