Instant View - August services PMI falls more than expected

LONDON (Reuters) - Service sector activity grew last month at its slowest pace since April 2009, with a sharp fall in hiring as employers worried about an economic slowdown and public spending cuts, the Markit/CIPS PMI survey showed on Friday.

KEY POINTS

- Markit says Aug PMI surveys point to 0.5 pct Q3 GDP growth

- Lowest headline PMI index since April 2009

- Lowest new business index since June 2009

- Lowest jobs index since Oct 2009

- Lowest prices charged index since April

- Highest input prices index since May

- Highest activity expectations index since May

ECONOMISTS' VIEWS

JONATHAN LOYNES, CAPITAL ECONOMICS

"The drop in the main business activity index is ... consistent, on past form, with very little expansion -- if any -- in activity the biggest sector of the economy."

"The fact that the surveys tend to lead the hard economic data by a few months means that GDP is still likely to post a reasonable expansion in the third quarter of the year.

"But should the surveys continue to weaken in the next few months, the threat of a renewed contraction in Q4 and beyond would become very real indeed."

HOWARD ARCHER, IHS GLOBAL INSIGHT

"This is a worrying report. The purchasing managers survey deals a significant blow to growth prospects."

"The recovery is coming under increasing pressure from the fiscal squeeze. In addition, slowing global growth is a concern."

"We currently forecast growth of 0.5 percent quarter-on-quarter in the third quarter helped by resilient consumer spending, but the downside risks to this forecast is mounting."

HETAL MEHTA, DAIWA SECURITIES

"The services sector has been gradually winding down since February and today's data give added reason to be gloomy about the outlook. The further decline in employment also suggests that the labour market will be slow to improve, particularly with more public sector job cuts on the way.

"The services sector is key to the performance of the economy, and with this slowdown gathering pace, combined with the disappointing manufacturing PMI reading, it is clear that the remainder of this year will see subdued growth. And while it may still be a little premature to say that the economy will experience a double-dip, the risks are increasing."

ALAN CLARKE, BNP PARIBAS

"This is basically confirming that Q2 GDP growth was a blip and it is pointing to negative quarter on quarter growth around the turn of the year.

"These figures do not include government spending which we know will be punching below its weight"

"I wouldn't call that a double dip recession but rather a soft patch for the economy"

GEORGE BUCKLEY, DEUTSCHE BANK

"It's not particularly great news. It's much lower than its long-run average. I think the worrying trend that we've seen over the past few months means that it could slip below 50 next month. That's not my forecast but people will be asking 'could we see a contraction?'."

"We'd have to stay at these levels for the duration of a quarter to be confident that GDP will slow down below trend. But I think this is just the typical nature of recoveries. We aren't expecting the recovery to be smooth and plain sailing. In the 1980s we saw lots of times recovery was strong in one quarter and patchy the next."

STEPHEN LEWIS, MONUMENT SECURITIES:

"The data is a bit softer, it's always hard to interpret these surveys but it does go some way to corroborating what we have seen in many other surveys and anecdotally from the Bank of England's agents, which is that the economy is slowing from a rather fast rate of expansion earlier this year."

"(on Q3 GDP growth)....I would say it will be more like 0.2/0.3 percent, the reason being that we are going to see a much smaller contribution from construction."

SURVEY COMPILER'S COMMENT

CHRIS WILLIAMSON, CHIEF ECONOMIST, MARKIT

"The service sector is struggling to sustain momentum after a buoyant second quarter. Growth in August was the weakest in sixteen months. Our model based on the three PMI surveys up to August is signalling a GDP increase of 0.5 percent for Q3, meaning the second quarter 1.2 percent surge in GDP will represent a peak in the recovery cycle."

"Disappointingly, the rate of job losses in private sector service companies has picked up sharply again to the highest since last October as companies remain worried about the outlook."

"Confidence about the year ahead has failed to recover from June's record drop, with public sector spending cuts and the looming VAT hike in January creating uncertainty over the future direction of the economy."

"While a double dip recession remains unlikely, the survey suggests that the risk has increased and that growth looks set to be slow and choppy going forward."

(Reporting by David Milliken)