Results from a Markit survey have shown the service sector in the UK slowed dramatically last month, as the weakest growth so far this year was recorded. The purchasing manager’s index dropped from 55.4 to 51.1 in August. Although, any figure above 50 illustrates the industry is growing, this is the biggest fall in over ten years.
The responses collected by the survey also suggested that people’s certainty of the service sector’s future was also unsteady. The main factors respondents felt were responsible for the decline in growth were fewer new orders and a general insecurity over the state of the economy on the whole. In addition, it was also suggested that the riots that occurred in August could be a cause for the reduced levels.
Analysts have made clear that whilst a drop was expected after the big jump in July, a slowdown in activity of this size is a real shock. Paul Smith, senior economist at Markit, explained that there hasn’t been a drop in activity of this size since 2001.
In addition to the slow down in activity in the service sector, Markit figures also showed the manufacturing PMI fall to its lowest in over two years. This, along with the Markit results concerning the service sector, is worrying and has increased the likelihood that the Bank of England may supply more money to the economy.
Chris Williamson, chief economist at Markit, has said that what is most worrying about the fact that all the PMI surveys have shown decline in growth, is that next month when the GDP figure is calculated from the third quarter, it could be even lower than the 0.2% growth calculated in the second quarter. This could mean a very low economic growth rate for 2011 overall.
It has been suggested that this disappointing PMI data will encourage the Bank to consider quantitative easing more seriously.
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