October 3, 2014 / 8:35 AM / 5 years ago

UK services PMI slips in September as economy loses pace

A worker looks at his phone at the Canary Wharf business district in London February 26, 2014. REUTERS/Eddie Keogh

LONDON, Oct 3 (Reuters) - Rapid growth in Britain’s services sector eased slightly in September and a broader measure of private-sector expansion fell to a six-month low, a major business survey showed on Friday, raising the prospect of an end-of-year slowdown.

The Markit/CIPS services purchasing managers’ index (PMI) dropped to a three-month low of 58.7 in September from August’s nine-month high of 60.5, falling slightly more than economists had forecast in a Reuters poll.

The index is still well above historic averages and the 50-mark that separates growth from contraction. But combined with Wednesday’s weak manufacturing PMI, a composite measure for the whole of the private sector dropped to its lowest in six months, sinking to 58.1 from 59.7. Markit’s chief economist Chris Williamson said the index suggested gross domestic product growth of 0.8 percent in the three months to September, only a shade lower than the 0.9 percent achieved in the second quarter.

But prospects for the final three months of 2014 looked less rosy - in line with Bank of England forecasts that the recent exceptionally strong period of growth for Britain’s economy will soon come to an end.

“The worry is that the economy could slow faster than anticipated,” Williamson said, saying there was a danger that recent weakness in manufacturing and poor morale in construction could spread to the far larger services sector. “This adds to the case for interest rates to remain on hold until next year, and at least until there are clear signs of wages and household incomes rising in real terms,” he added.

The BoE forecasts Britain’s economy will grow by 3.5 percent this year, putting it on track to be the world’s fastest-growing major advanced economy.

But most BoE policymakers have said they are in no rush to raise interest rates from their record-low 0.5 percent, citing low inflation, high unemployment and very weak wage growth. That said, September’s services PMI showed a rare sign of inflation pressure. Firms said they raised prices at the fastest rate since January, mostly because of higher input costs and stronger market demand. Thursday’s construction PMI reported labour shortages and supply bottle-necks.

Reporting by David Milliken; Editing by Toby Chopra

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