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UK growth slows as dominant services sector cools off

By Holly Williams

Published 06/08/2015

Economist: Chris Williamson
Economist: Chris Williamson

Growth in Britain's powerhouse services sector cooled off last month in the latest sign that economic expansion has eased since a robust second quarter, according to figures.

The closely-watched CIPS/Markit purchasing managers' index (PMI) survey ­­- in which the figure 50 separates growth from contraction - showed a lower-than-expected reading of 57.4 in July.

This was down from 58.5 in June and follows a disappointing July PMI reading for the construction sector on Tuesday, hit by the weakest pace of growth in housebuilding for more than two years.

Manufacturing PMI data on Monday also failed to impress after growth in the sector remained near stagnant as new orders grew at their slowest rate for almost a year.

Chris Williamson, chief economist at Markit, said: "A deterioration in service sector growth is the latest in a stream of signals that the economy has slowed as we move into the second half of the year."

The wider economy bounced back from a slower start to 2015 with growth of 0.7% in the second quarter, according to initial official estimates.

Mr Williamson said the survey data suggests growth edged lower at the start of the second half, but likely only dipped to a "still-impressive" 0.6%.

Howard Archer at IHS Global Insight is forecasting growth to remain at 0.7% overall in the third quarter, thanks in part to a boost from ongoing falls in the price of oil.

With the latest interest rates decision due today - which will be accompanied by the minutes of the rates meeting for the first time - economists believe the run of unimpressive data will not be enough to put off a number of policymakers from voting for a rise in the cost of borrowing.

It is thought that two or maybe more members of the Bank's Monetary Policy Committee (MPC) will call for a 0.25% rise in what would be the first split vote so far this year.

But Mr Williamson said most members will likely see "no need to rush into hiking rates".

"The doves will view the recent signs of cooling economic growth and slower job creation, also noting that inflation is currently zero and shows few signs of lifting higher due to the strong pound and falling oil prices," he added.

The services report showed that growth was supported by financial services firms, which enjoyed the best rise in activity since 2013.

Belfast Telegraph

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