Recovery in services sector slows in June

By Christina Fincher

LONDON (Reuters) - The dominant services sector expanded for a second month in June but the pace of recovery slowed as new business contracted and firms stepped up the pace of job cuts, a monthly survey showed on Friday. The headline PMI index eased to 51.6 from 51.7, confounding expectations for an improvement to 52.0.

Last month's leap above the 50-mark that denotes growth raised hopes that Britain may be one of the first major economies to emerge from recession.

While a pause in momentum may not be a huge setback given the pace of improvement in recent months, it will play into policymakers' fears that a sustained recovery is far from assured.

"The sideways movement in the headline business activity index in part reflects some consolidation," said Paul Smith, senior economist at Markit.

"Nonetheless, the underlying data indicate that the business climate remains fragile with tight lending conditions and rising unemployment remaining key threats to continued service sector recovery."

There was little market reaction to the figures with investors convinced the Bank of England will keep interest rates at record lows for some months to come.

Neither does the Bank appear in any rush to reverse its policy of pumping money into the economy to boost demand. Indeed, the current debate is whether the Bank will raise its target for quantitative easing with many economists expecting an increase to 150 billion pounds to be announced as early as next week.

FRAGILE RECOVERY