Britain's services sector grew last month at its slowest rate for 10 months, a survey showed today, held back by subdued new business and a record monthly drop in confidence.
The CIPS/Markit services PMI headline activity index fell for the third time in four months from 55.4 in May to 54.4 in June. That was weaker than the consensus forecast and the lowest level since August 2009.
While still signalling a solid increase in activity, Paul Smith, senior economist at Markit, said it pointed to a slowdown in growth heading into the second half of 2010.
The index has been above the 50 mark which separates growth from contraction for more than a year. The consensus forecast had been for a reading of 55.0.
The June 22nd emergency budget, which proposed swingeing government spending cuts and tax hikes, came in the middle of the survey, carried out between June 11th and 28th.
The budget's austere measures, aimed at reining in the largest peacetime budget deficit, had an impact on new business and confidence, with some fearing a return to recession, the survey found.
Weaker growth was put down to relatively small gains in new business, which though helped by new orders growing at a stronger rate than in May, remained subdued by historical standards.
Financial and political uncertainty, with the new coalition government just weeks old, had held back some clients from committing to new contracts, some respondents said.
Business expectations fell 8.1 points to 64.0, a 15-month low and the single biggest month-on-month fall in 14 years of recorded data.
But levels were still firmer than at the height of the recession, with some bullish about the future.
Seperately, Germany's services sector expanded in June but generated less new business than a month prior, adding to concerns economic growth may stutter as governments withdraw stimulus measures. Final data for the Markit purchasing managers' index covering the services sector showed its headline reading held steady at 54.8 in June, registering an 11th consecutive month of growth for companies ranging from banks to bakeries.
But new business slipped into contraction for the first time in seven months, raising questions over the durability of recovery in a segment that makes up two-thirds of Europe's largest economy.
The new business reading came as a surprise after a flash estimate for June had put it just over the 50 mark separating growth from contraction - instead of landing as it did, a full point lower, at 49.5.
Germany ended its deepest post-war recession in the second quarter of last year. The recovery has picked up over the past couple of months and data released last week suggest it will gather pace, despite lingering doubts over what may lie further down the road.
Spain's services sector growth also slowed in June. Markit's Purchasing Managers Index of service companies slipped to 51.8 from 52.3 in May, the first drop since February but still slightly above 50, the line that divides contraction from growth.
The new business index dropped back into contraction, registering 47.5 in June after 51.8 in May, the first time the index has shown a decline in activity in four months and the sharpest contraction since December.
While remaining generally optimistic, business sentiment fell for the second month in row to the weakest level registered for 13 months. The employment index showed lay offs continued for the 28th consecutive month. Government data released on Friday showed joblessness fell at the sharpest rate in five years in June, but many of the jobs created were seasonal, temporary posts.
Growth in Italy's services sector slowed for a third month running in June, dropping to 51.5 from 53.7, posting its lowest reading since February.
The headline services PMI index is now almost five points below March's recent high of 55.3 and is only slightly above the 50 threshold separating growth from contraction.
New order growth slowed for the third month running, jobs were shed for the twenty-first straight month and backlogs of work were depleted for the first time in five months, Markit/ADACI reported.
Falling charges for services continued to contrast with rising costs, while the index measuring expectations for business in 12 months' time fell to 70.9 from 73.6 to hit its lowest level since July 2009.
Reuters