Economy stagnates as services growth slows

The British economy is virtually stagnant as the latest growth crunch for services firms heralds a fresh rise in unemployment, a survey warned yesterday.

Services firms, ranging from hotels and restaurants to IT and accounting, saw easing growth during September and also cut staff for the first time since November last year, according to the Chartered Institute of Purchasing & Supply.

The latest worrying signs follow outright contraction of manufacturers and builders, raising the chances that the Bank of England will be forced to cut growth forecasts and return to the printing presses with more quantitative easing next month.

Survey compiler Markit said its data was consistent with growth of just 0.1 per cent between July and September, though official figures will be much stronger when a bounce-back from Jubilee celebrations is factored in.

Chief economist Chris Williamson warned that the economy "barely expanded" in the third quarter. He added: "Employment has also suffered in response to the slowdown, with September seeing one of the steepest cuts to service-sector staffing since 2009. With the mini-boom in the labour market having now come to an end, it seems inevitable that unemployment will start to rise again." The snapshot of a sector which accounts for three-quarters of the UK's economic output came as more gloom emerged from the beleaguered eurozone, where services firms are suffering the sharpest slowdown since July 2009.

France and Spain were particularly hard hit during the month as the single-currency bloc heads for a virtually certain double-dip recession. Citigroup UK economist Michael Saunders said: "All this suggests that the MPC [Monetary Policy Committee] will once again have to acknowledge that the economy is likely to underperform their forecasts… We doubt that activity will improve significantly in the fourth quarter this year."

China's services firms also endured the slowest growth for nearly two years last month as the malaise among manufacturers spread.