Growth slows in UK service sector in June

Growth in the UK’s service sector slowed down in June, with weak demand and the extra holidays for the Queen’s Diamond Jubilee weighing on activity, a new survey showed today.

The Purchasing Managers’ Index (PMI) for the UK service sector, compiled by the Chartered Institute of Purchasing & Supply (CIPS) and financial information services firm Markit, was registered as 51.3 for the month, down from 53.3 in May to stand at an eight-month low. Any reading above 50 indicates growth, so the sector continued to grow during June but at a slower rate.

Although the UK’s service sector has managed to maintain growth for 18 months, the average index level for the second quarter of 2012 is well down on that recorded for the first quarter of the year.

Analysts said that the weak figures indicate that the UK’s double-dip recession, which was confirmed in the first quarter of of 2012, continued in the second quarter.

Chris Williamson, chief economist at Markit, noted that the other recent PMI surveys have shown an ongoing downturn in manufacturing and a deterioration in the construction sector in June, so the weak growth reflected in the services PMI makes it more likely that the Bank of England will expand its quantitative easing (QE) programme.

The main reason for the weaker activity growth in June was a slowdown in new business. Concerns about the eurozone debt crisis and the UK’s economic outlook, as well as expectations for a post-Olympics lull in activity, resulted in business confidence in the sector falling to a six-month low.

In addition, the authors of the report said there was anecdotal evidence suggesting that the net effect of the Jubilee holidays was to reduce market activity, although this was partly offset by reports of an increase in work ahead of the Olympic Games.