Growth slows in services sector

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The Independent Online

The UK's services sector expanded at its slowest rate for three months during May, offering more signs today of pressure on the UK economic recovery.

With consumer spending power weakened by inflation and low wage growth, today's Markit/CIPS survey, where a reading of above 50 indicates growth, showed activity slowed to 53.8 in May from 54.3 the previous month.

The run of bank holidays in April is likely to have caused some lost momentum, but economists said the findings added to the largely disappointing news on the UK economy in recent days.

Earlier this week, the same survey covering the manufacturing sector showed a drop in production and new orders for the first time since June and July 2009 respectively.

While not as bad as the industrial figures, Vicky Redwood of Capital Economics said the latest deterioration in the services sector "provided further evidence that the economic recovery is still struggling".

The figures have also reinforced expectations that interest rates will be kept at a record low of 0.5% when the Bank of England's monetary policy committee meets next week.

Howard Archer, chief UK economist at IHS Global Insight, added: "Given the dominant role of the services sector, the survey fuels concerns over the fragility of the economy and its ability to withstand the fiscal tightening that increasingly kicked in from April."

Today's report showed average prices charged by UK services firms continued to increase in May, extending the current period of inflation to eight months as companies responded to rising input costs.

Employment was broadly unchanged in May with firms also at their most optimistic for three months, buoyed by recent gains in new work and reports of strong business pipelines.

CIPS director David Noble said: "No one knows the full extent of what Government cuts will bring but it's clear that any business relying on consumers parting with their hard-earned cash is likely to face an uphill struggle.

"It may also be some time before the current level of growth translates into meaningful job creation."