Service providers see growth plummet as economic concerns rise

UK service providers saw activity slump in August, as fears over the economy continue to grow.

The results of last month’s Markit/CIPS UK Services Purchasing Managers’ Index (PMI), which covers transport & communication, financial intermediation, business services, personal services, computing & IT and hotels & restaurants, showed that the headline index fell 4.3 points in August to 51.1 – only just above the 50 no-change mark.

The decline was greater than after the Lehman Brothers collapse and second only to the foot and mouth related fall in April 2001. The slowdown reflects a weaker trend in new business, and has led to business confidence being the lowest in 12 months.

Commenting, Paul Smith, senior economist at Markit said: “Although the slowdown may reflect a reaction to a solid expansion in July and minor impacts from riots and public disorder in early August, there can be little doubt that the underlying growth profile of the sector has weakened in recent months.”

David Noble, chief executive officer at the Chartered Institute of Purchasing and Supply adds: “This eye-watering decline in this month’s Services PMI figures shows the full impact of current weakness and instability in the wider economy.

“As the sector clings onto growth, purchasing managers are also suffering from a wavering trend in new business. Anarchy on the streets in some parts of the UK during August also didn’t help to stave off the loss in momentum since July.”

The news follows Markit’s Household Finances Index for August, which found that household finances worsened at the fastest pace since the survey began in February 2009. Meanwhile the Markit/CIPS UK Manufacturing PMI fell to a 26 month low in August.