Services slowdown adds to money-printing pressure

Britain's dominant services sector slowed down in June, hitting hopes that it would save the UK from another quarter of recession and increasing the pressure on the Bank of England to pump more money into the economy to stimulate growth.

The monthly Markit/Cips Purchasing Managers' Index, which provides a snapshot of the sector, fell to 51.3, down from 53.3 in May, and an eight-month low. The sector, which accounts for 75 per cent of UK output, is still growing, but it slowed down more than City analysts had been expecting.

"It confirms the subdued nature of economic activity in the UK and the need for more monetary stimulus" David Page of Lloyds Bank said. The City is expecting the Bank's Monetary Policy Committee to extend its £325bn quantitative easing programme by between £50bn and £75bn at the conclusion of its monthly meeting today.

Markit reported that the net effect of the Queen's Jubilee holidays was to depress economic activity, as additional spending was offset by fewer working days. There were also signs that the ongoing eurozone debt crisis undermined consumer and business confidence. Optimism among purchasing managers fell to a six-month low. Retailers were also forced to cut their prices for the second month running to win new business, despite rising input costs.

Chris Williamson, the chief economist at Markit, said that June was one of the worst months for services since the end of the last recession and that the index reading was consistent with growth of the sector of 0.2 per cent in the second quarter of the year.

Earlier this week, PMI surveys of the construction and manufacturing sectors showed a sharp contraction of activity in June. Construction activity fell at its quickest pace in two-and-a-half years. Markit said the combined surveys suggest Britain's GDP will contract by 0.1 per cent in the second quarter of this year, following a 0.3 per cent contraction in the first and a shrinkage of 0.4 per cent in the final three months of 2011.

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