UK economy remains ‘subdued’ in another period of weak GDP growth, latest survey figures show

The Purchasing Managers’ Index (PMI) for services, which account for around 80 per cent of the economy, came in at 53.6 in September

Services firms, including restaurants, reported a decline in growth optimism for the year ahead (AFP)

The UK economy remained “subdued” in the third quarter of this year according to the latest survey snapshot of the dominant services sector, pointing to another period of weak GDP growth.

The Purchasing Managers’ Index (PMI) for services, which account for around 80 per cent of the economy, came in at 53.6 in September.

That was above the 50 point, which separates growth from contraction, and up from 53.2 in August but it was down on the average levels seen in the first half of 2017.

Services firms also reported a decline in optimism regarding growth for the year ahead.

It follows a disappointing September PMI for manufacturing and a survey that pointed to a return to contraction for construction last month.

“The three PMI surveys put the economy on course for another subdued 0.3 per cent expansion in the third quarter, but the fourth quarter could see even slower growth,” warned Chris Williamson of IHS Markit, which compiles the surveys.

Tepid services

However, sterling rose to $1.3270, up 0.26 per cent on the day, in the wake of the services PMI data as traders bet it was strong enough not to derail a widely expected Bank of England hike in interest rates in November

Subdued overall activity picture

“We still lean towards the Bank of England hiking interest rates from 0.25 per cent to 0.50 per cent in November, but the disappointing mix of higher inflationary pressures but slower economic activity in the September purchasing managers’ surveys highlights the [Monetary Policy Committee’s] dilemma,” said Howard Archer of the EY Item Club.

The services PMI pointed to cost inflation at a seven-month high in September.

Official consumer price inflation hit 2.9 per cent in August and the Bank has signalled that it is gearing up to raise rates “over coming months” in order to prevent it going significantly higher.

The PMI services survey covers hotels, restaurants, transport companies, business services and financial firms.

UK GDP growth was just 0.3 per cent in the second quarter of 2017, according to the Office for National Statistics.

The annual rate of GDP growth slowed to 1.5 per cent, the weakest since 2013.