Market Commentary and Intraday News

UK Service Sector Growth At 19-month Low

289 days ago

(RTTNews) - The U.K. service sector expanded at the slowest pace in nineteen months in July as the deepening economic slowdown continued to weigh on activity and demand, latest data showed.

Temporary factors like poor weather and disruption in the lead up to the Olympics also contributed to the slump in activity, which was expected to improve after June's fall due to the extra holiday in connection with the Queen's Jubilee.

The seasonally adjusted purchasing managers' index for the service sector dropped to 51 from 51.3 in June, data from a survey by Markit Economics and the Chartered Institute of Purchasing and Supply (CIPS) showed Friday. Economists had expected the index to rise to 51.6.

Service sector firms saw rising new business in July and yet, were able to reduce backlogs at the sharpest rate since November. Firms increased their workforces for the eighth month in a row.

Input prices continued to rise, despite evidence of falling fuel costs, as suppliers passed on their own higher costs. With margins under pressure due to strong market competition and weak demand, firms resorted to discounting that led to a fall in output charges.

Meanwhile, business sentiment among entrepreneurs remained positive as they expect to benefit from increased investment and new product releases, data showed.

U.K.'s manufacturing sector contracted at the fastest rate since March 2009 on substantial declines in output and new orders, a Markit survey revealed earlier this week. Taking together the data from the manufacturing, construction and services PMI surveys, the All-Sector PMI dropped below 50.0 for the first time in 39 months in July, Markit said.

"The latest data further highlight the loss of momentum in the U.K economy following the relatively bright start to the year," Markit Senior Economist Paul Smith said.

Preliminary estimate from the Office for National Statistics showed that the British economy sunk deeper into recession in the second quarter. Gross domestic product dropped 0.7 percent sequentially, marking the biggest fall since the first quarter of 2009.

Inflation has continued to slow in the U.K. on easing fuel prices amid weakening economic activity, down to 2.4 percent in June, the lowest since November 2009. The central bank estimates the inflation rate to be around 1.6 percent in two years time.

The Bank of England kept its policy unchanged yesterday despite the economy slipping deeper into recession. The bank maintained its asset purchase program at GBP 375 billion and the key interest rate at a historic low of 0.50 percent.

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