Economy suffers slowdown as double dip looms

Analysts gloomy after fall in construction orders and decline in business confidence

Economists fear the dangers of a double-dip recession are "growing alarmingly" after the release of the latest "grim" survey of business confidence in the service sector, and evidence of collapsing order books in the construction industry.

As the Bank of England's Monetary Policy Committee prepares to meet for its next session next week, the news adds to the pressure on the Bank to resume its programme of "quantitative easing", the direct injection of money into the economy.

The Chartered Institute of Purchasing and Supply (CIPS) reported yesterday that business sentiment remained "historically low", with pessimism about jobs driving the reading sharply down. The CIPS services index fell for the second month running, from 53.1 in July to 51.3 last month. Although suggesting a marginal expansion in services activity in coming months – the reading being above the benchmark figure of 50 – the trend is clearly downwards.

Adding the most recent results for manufacturing and construction shows the CIPS composite index, representing the vast bulk of the economy, suggesting that a marked slowdown is coming. The weighted average of the three indices declined further in August from February's post-recession peak, dropping 1.8 points – the largest decline since November 2008. The increase in output signalled in August was the weakest since June last year.

With thousands of jobs due to be cut in the public sector in coming months, the private sector seems ill-prepared to take up the slack. Service sector companies reduced their staffs in response to the continuing slowdown of new business growth in August, and the rate at which jobs were lost was the strongest since last October.

Chris Williamson, chief economist at Markit, which conducts the CIPS survey, said: "Our model is signalling a GDP increase of 0.5 per cent for the third quarter, meaning the second quarter 1.2 per cent surge in GDP will represent a peak in the recovery cycle.

"Disappointingly, the rate of job losses in private sector service companies has picked up sharply again to the highest since last October as companies remain worried about the outlook.

"Confidence about the year ahead has failed to recover from June's record drop, with public sector spending cuts and the looming VAT hike in January creating uncertainty over the future direction of the economy."

The disappointing survey came on the day the Office for National Statistics published gloomy news for the construction sector. Orders for the building trade plunged by 14 per cent in the second quarter, with few parts of the sector escaping the pain. The slowdown in the property market is again feeding through to the builders, while actual cuts in local authority and central government spending on housing and infrastructure is beginning to make their presence felt. Private housing orders in the second quarter of 2010 fell by 24 per cent compared with the previous quarter, and infrastructure orders were down by 22 per cent.

The results suggest that the strong second-quarter growth of GDP published by the ONS – recently revised up by 0.1 per cent to 1.2 per cent for April o June – may have significantly overstated the robustness of the recovery.

Economists are becoming increasingly downbeat about the prospects of the economy. Alan Clark at BNP Paribas, said the CIPS survey was "grim reading" and "reinforces the likelihood that the economy will begin to contract in the not-too-distant future".

Jonathan Loynes at Capital Economics added: "The three major sectors of the economy are now slowing sharply in tandem. The dangers of a double dip are growing alarmingly."

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Books should be for everyone, says Els, 8. Publisher Scholastic now agrees
booksAn eight-year-old saw a pirate book was ‘for boys’ and took on the publishers
Life and Style
Mary Beard received abuse after speaking positively on 'Question Time' about immigrant workers: 'When people say ridiculous, untrue and hurtful things, then I think you should call them out'
tech
Life and Style
Most mail-order brides are thought to come from Thailand, the Philippines and Romania
life
News
i100
Life and Style
tech
Voices
Margaret Thatcher, with her director of publicity Sir Gordon Reece, who helped her and the Tory Party to victory in 1979
voicesThe subject is being celebrated by the V&A museum, triggering some happy memories for former PR man DJ Taylor
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Business Analyst - Financial Services - City, London

£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...

SThree: Trainee Recruitment Consultant

£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...

Recruitment Genius: Administrator - IFA Based

£22000 - £24000 per annum: Recruitment Genius: This is an opportunity to join ...

Day In a Page

General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence
Public relations as 'art'? Surely not

Confessions of a former PR man

The 'art' of public relations is being celebrated by the V&A museum, triggering some happy memories for DJ Taylor
Bill Granger recipes: Our chef succumbs to his sugar cravings with super-luxurious sweet treats

Bill Granger's luxurious sweet treats

Our chef loves to stop for 30 minutes to catch up on the day's gossip, while nibbling on something sweet
London Marathon 2015: Paula Radcliffe and the mother of all goodbyes

The mother of all goodbyes

Paula Radcliffe's farewell to the London Marathon will be a family affair
Everton vs Manchester United: Steven Naismith demands 'better' if Toffees are to upset the odds against United

Steven Naismith: 'We know we must do better'

The Everton forward explains the reasons behind club's decline this season
Arsenal vs Chelsea: Praise to Arsene Wenger for having the courage of his convictions

Michael Calvin's Last Word

Praise to Wenger for having the courage of his convictions