Services sector growth 'slows down'

Growth in Britain's dominant services sector eased to a three-month low in September amid signs of the recovery "losing its legs".

The services sector represents three-quarters of UK economic output
The services sector represents three-quarters of UK economic output

The Markit/CIPS services purchasing managers' index (PMI) registered 58.7 - where the 50 mark separates growth from contraction. It is a level that still indicates rapid expansion but a fall from 60.5 in August.

The sector, which represents three-quarters of UK economic output, grew as firms reported new business volumes which rose sharply.

A composite survey for the whole of the private sector dropped from 59.7 to 58.1, its lowest level in six months.

Figures from manufacturing earlier this week showed growth in that sector had slowed to near stagnation, though construction activity improved.

Chris Williamson, chief economist at Markit, said data suggested growth had slowed to 0.8% for the third quarter from 0.9% in the previous period though this was still robust.

But he said there were signs that economic expansion could slow further in the fourth quarter.

Economists said the figures were likely to ease any pressure on Bank of England policy makers to hike interest rates from their historic 0.5% low before the end of the year.

Mr Williamson said: "September's PMI surveys suggest that the UK most likely enjoyed another spell of above-trend economic growth in the third quarter, but the recovery appears to be losing its legs.

"The slowdown is in line with Bank of England projections and, alongside record low pay growth, adds to the case for interest rates to remain on hold until next year, and at least until there are clear signs of wages and household incomes rising in real terms."

IHS Global Insight economist Howard Archer said: "With the purchasing managers reporting still strong but slightly slower expansion in September, it seems unlikely that the Bank of England will hike interest rates before the end of this year."

"It certainly looks a pretty safe bet that the Bank of England will keep interest rates at 0.5% at its October policy meeting next week."

The services data showed that firms hired more workers for the twenty-first month in a row while confidence among these businesses improved amid expectations of strengthening demand in domestic and overseas markets.

Mr Williamson said: "The strong pace of job creation signalled by the PMI surveys should eventually lead to higher pay growth and rising personal incomes, something which we expect to see materialise towards the end of the year and putting pressure on policymakers to raise interest rates in the first half of next year."