Activity in Britain’s dominant services sector ticked up slightly in June, but the recovery still remained fragile as business confidence fell to an eight-month low.
The Markit/CIPS services index rose to 53.9 last month, from 53.8 in May. This was an improvement on both the construction and manufacturing surveys, which showed that the pace of growth slowed in both sectors in June.
However, taken together, the surveys suggest the economy failed to gain traction in the second quarter of the year. Chris Williamson, Markit’s chief economist, predicted that second-quarter GDP growth of 0.3 per cent at best, noting that services growth appeared to have slowed to 0.5 per cent, from 0.8 per cent in the first three months of the year.
The survey said that a “downbeat mood” was evident among some in the services sector as confidence regarding future activity softened significantly during June. “Businesses are less than sure-footed due to worries around austerity measures and general economic conditions,” said David Noble, CIPS chief executive.
He also added that the slight rise in activity had yet to translate into meaningful increases in employment figures, with the respective index scraping in just above the 50 no change mark for a second successive month.
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The only bright spot was on the inflation front. Input prices and prices charged both increased at their slowest pace this year, providing hope that inflation in the broader economy — more than double the Bank of England’s 2 per cent target — will start to fall.
The details of the PMI survey painted a subdued picture. Employment was static, new business growth slowed and confidence slipped to its lowest since October.
Reluctant to jeopardise Britain’s fragile recovery, the central bank looks set to keep interest rates at a record low not just this week but for the rest of the year. Investors are not fully pricing in a rise in UK rates until next June.