Growth in the UK services sector has slowed to its lowest rate since October 2010, according to new research.
The Markit/CIPS UK Services purchasing managers index for the sector fell from 53.3 to 51.3 between May and June – a figure over 50 indicates growth.
“Growth has now been sustained for 18 months, but has recently seen a deceleration with the average index level for Q2 well down on that recorded for the opening quarter of the year,” the report says.
“The UK service sector continued to grow during June, albeit at a slower rate as the additional holidays around the Jubilee and reports of a fragile underlying demand environment weighed on activity and new business wins.
“Highlighting growing concerns about the UK macroeconomic outlook, business sentiment in the sector fell markedly to hit a six-month low.”
It adds: “Temporary factors played some part, with anecdotal evidence suggesting that the net effect of the Jubilee holidays was to reduce market activity. This was offset to some degree by reports of an increase in work ahead of the Olympics, but there was nonetheless a suggestion that business confidence was generally lower in June.
“The European sovereign debt crisis was reportedly a factor weighing on sentiment, creating an air of uncertainty that led to business plans being put on hold.”
The report says that worries over Europe and the uncertainty over the direction of the UK economy also had a bearing on UK service providers’ future expectations.
“With a post Olympics lull in activity also anticipated, business sentiment dropped sharply in June and was the lowest since last December.
“Efforts to grow sales volumes were supported in June by further discounting. UK service providers signalled a back-to-back fall in output charges as competitive pressures, client requests for tariff cuts and a lack of demand all depressed pricing power.”
Meanwhile, margins remained “under some pressure as operating costs continued to rise over the month”, the report adds.
Employment in the sector increased for a seventh successive month in June “as companies responded to recent rises in workloads”. “However, the rate of expansion was only modest as panellists continued to use the non-replacement of leavers as a way of controlling costs.”