UK service sector growth slows rapidly

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A survey has suggested that activity in the UK service sector grew at its slowest pace in almost two years during October. The Purchasing Managers Index (PMI) from from Markit/CIPS fell to 50.6 from 52.2 in September and a score above 50 specifies growth.

Markit commented that growth in new business eased, whilst employment in the sector fell for the second consecutive month. Markit added that the data was a reminder of the tough economic conditions despite growth exceeding estimations last month.

Andrew Harker, Markit economist said, “The latest UK services PMI data provide a warning to those who saw the strong growth in the GDP in the third quarter as symbolising the start of a strong and speedy economic recovery.”

“The expectation among firms is for activity to improve over the coming year, but the road to full economic recovery still looks to be a long one.”

Analysts described that a dip in the PMI readings could mean that the Bank of England may increase its programme of quantitative easing (QE), which currently stands at a level of £375 billion.

George Buckley at Deutsche Bank commented, “It does raise the risk of further QE from the Bank. On balance, though, we think it probably won’t, given the risk of inflation.”

“What it does tell us is that while there have been some mixed messages, more positive than negative, we’re not seeing a very fast recovery at all.”

Vicky Redwood, at Capital Economics stated, “The MPC pays a lot of attention to this survey and this Thursday’s meeting now looks an even closer call than before.”

“Given the stronger near-term outlook for inflation, we think that the chances of more QE this week are just below 50-50.”

The UK has however been shown in a positive light by the Centre for Economics and Business Research (CEBR) In a study they suggested that the UK would be the fastest-growing major economy in Europe in the next two years. They predicted that whilst the Eurozone economy would contract by 0.4% in 2013, the UK economy would grow by 0.8%.

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