Slowdown in services sector growth highlighted in new figures

The fragility of the UK recovery was highlighted today after new figures showed a slowdown in growth in the powerhouse services sector.

The Markit/CIPS purchasing managers' index (PMI) for services activity, in which a reading above 50 represents growth, came in at 52.2 in September, down from 53.7 the previous month, when the Olympics distorted the performance.

With this week's monthly surveys for the manufacturing and construction sectors also weaker, Markit said it was likely that the UK economy barely expanded in the third quarter, following nearly a year in recession.

It expects underlying growth of 0.1% for the three months to September 30, although a technical bounce-back from second quarter weakness arising from the extra Jubilee holiday means the official figure is likely to be higher.

The slower conditions meant services employment declined for the first time since last November, with many companies choosing not to replace leavers.

Markit chief economist Chris Williamson said: "With the mini-boom in the labour market having now come to an end, it seems inevitable that unemployment will start to rise again."

There was some hope from the fastest growth in new orders since May, although Markit said it was too early to say whether this was just a revival after an Olympics-related lull.

Economists said the latest figures were unlikely to influence the Bank of England's monthly policy decision tomorrow, given that it has still not completed its £50 billion programme of quantitative easing in July.

Martin Beck, an economist at Capital Economics, said: "Overall, it is looking like the rebound in the economy expected in the third quarter is struggling to get any oomph behind it."

Higher fuel and energy costs, as well as an increase in food prices, contributed to a continued rise in operating expenses in September.

Despite this, services firms recorded little change in their own charges, following marginal inflation in August.

Today's report said: "Market pressures continued to weigh on pricing power, with competition reportedly fierce and the underlying business climate still fragile."

Overall confidence rose to a four-month high, with many respondents anticipating an improvement in the UK economy, although the outlook still remains well below trend.

PA