Service sector growth weakens


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The Independent Online

Hopes of a rebound in the economic recovery were dashed today after a survey revealed the slowest rate of growth in the powerhouse service sector for three months.

The closely watched Markit/CIPS survey, where a reading above 50 indicates growth, dipped to 53.8 in February, down from a 10-month high of 56 in January.

The weaker performance, dragged down by a slower increase in new business orders, follows a lower-than-expected reading for the manufacturing sector as rising oil prices weighed on the sector.

Both industries reported stronger-than-expected growth in January, renewing optimism over the recovery, with the Bank of England citing the upbeat start to the year among its reasons for injecting a lower-than-expected £50 billion into the economy last month.

Vicky Redwood, chief UK economist at Capital Economics, said both surveys showed "that the recent pick-up in economic activity has already started to fade".

The service sector, which makes up roughly 75% of the total economy, saw a fall in sales growth last month, Markit said, despite evidence of price discounting to support new business wins.

The survey found that output prices recorded their steepest monthly fall since November 2009, which will support the view held by the Bank of England that inflation will continue to fall over the coming months.

There was some cheer, however, as employment in the service sector rose for a third successive month in February and confidence among respondents lifted amid "signs of an improved economic climate".

Howard Archer, chief UK and European economist at IHS Global Insight, said despite the disappointing February reading, the survey still suggests the overall economy will grow in the first quarter of the year and avoid a double-dip recession.

He said: "Relapses in economic activity remain a very real risk given major headwinds that notably include still pressurised consumers, rising unemployment, reduced government spending and a still significant eurozone sovereign debt problem."

The Markit/CIPS survey for manufacturing gave a reading of 51.2, down from 52 the previous month and weaker than City expectations of 52.1.

Manufacturers battled the sharpest monthly rise in input prices for more than 19 years and the second sharpest in the survey's history after three months of declines.