UK September services activity unexpectedly rises

Tuesday, 5 October 2010 21:59 -     - {{hitsCtrl.values.hits}}

LONDON (Reuters) - Services activity growth unexpectedly accelerated in September from a 16-month low, but the outlook is poor with the weakest inflow of new business in more than a year, a survey showed on Tuesday.

The figures did little to alter expectations that the Bank of England will keep its ultra-loose policy stance unchanged later this week and probably well into next year.

The Markit/CIPS services PMI index increased to 52.8 from 51.3, versus economists’ expectations for a slight fall to 51.0, causing British share prices to rally and sterling to strengthen against the dollar and euro.

“Today’s survey at least provides some reassurance that the economy is not plunging head-first into a renewed contraction,” said Capital Economics’s Vicky Redwood.

However, planned cuts to government departments’ spending of around a quarter over the next five years already seem to be affecting the firms covered in the survey, which excludes most activity in the public and retail sectors.

“Inflows of new work and prospects for the year ahead have been hit by widespread worries that the recovery is losing steam, cancelled government contracts and the prospect of more cuts to come,” said Markit’s chief economist, Chris Williamson.

The new business component slowed to a 15-month low of 51.3 from 51.4. Business expectations for the coming year increased to a four-month high but remained subdued by historic standards.

“Unless trends in new business show an improvement soon, the lack of confidence is consistent with a downturn in business activity in the coming months,” Williamson said.

Economists said the purchasing managers’ survey, alongside a fall in its manufacturing counterpart last week, pointed to growth in gross domestic product (GDP) slowing to 0.1-0.2 percent by the end of the year, as one-off factors aiding recovery fade and spending cuts start to bite. Growth hit a nine-year high of 1.2 percent in the second quarter.