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Uk Services Sector Grows For A Second Month But At A Slower Pace

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The services Purchasing Managers' Index (PMI) measured 51.6 last month, compared with 51.7 in May, where anything above 50 marks an increase in activity.

The marked improvement in activity over the past two months - which followed a year of contraction in the sector - helped to push confidence to a 20-month high, with the business expectations measure hitting 70.1.

However, it was not all good news and new business dropped back to 49.7, marking a fall, after rising in May to 51.8 on the PMI. According to the report, published jointly by the Chartered Institute of Purchasing Supply (CIPS) and Markit, new work was particularly down amongst those with the greatest reliance on consumer spending, including hotels and restaurants.

"The services sector is showing signs of life but it is still too early to tell if this is the start of a full blown recovery," said David Noble, chief executive of CIPS. "Consumer spending remains fragile and firms are being forced to slash prices in order to attract customers."

Paul Smith, senior economist at Markit, said that overall growth in the sector - which accounts for about 70pc of gross domestic product (GDP) - combined with some better than expected data from the manufacturing and construction PMIs over the past three months, supported "the notion that very marginal GDP growth may be recorded in the second quarter."

Other economists however said the latest PMI was a reminder that a quick and strong recovery does not necessarily lie ahead.

Hetal Mehta, senior economic advisor to the Ernst & Young ITEM Club, said that although the services PMI further demonstrated that the pace of economic contraction slowed in the second quarter, it is more likely that the economy shrank by 0.3pc.

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Activity in Britain's services sector grew for the second month in a row in June, but there are fears that the pace of recovery could be stalling.

The Chartered Institute of Purchasing & Supply (Cips) said that the services PMI index eased to 51.6 last month, from 51.7 in May, moving back towards the 50 mark that separates growth from contraction.

David Noble, Cips's chief executive, said: "The services sector is showing signs of life but it is still too early to tell if this is the start of a full-blown recovery.

"Consumer spending remains fragile and firms are being forced to slash prices in order to attract customers, even though their input costs continue to rise.

"With many consumers' purses staying firmly shut, those that rely most on consumer spending, such as hotels and restaurants, are really feeling the pressure."

The service sector's return to growth in May had fuelled hopes that the economy was bouncing back from the downturn. But today's figures for June showed that companies in the services sector are still slashing jobs, despite signs that the worst may be over, with employment in the sector falling for the 14th month in a row.

"Purchasing managers reported a lack of new business opportunities in line with difficult market conditions. It is still very tough out there for most firms so it's hardly surprising that jobs were slashed at an accelerated pace," said Noble.

Howard Archer, chief UK economist at consultants IHS Global Insight, warned that the early signs of recovery seen in May could be choked off.

He said: "Not only did the rate of expansion slow marginally in June, but, more worrying for future prospects, incoming new business contracted anew in June (albeit modestly) while employment in the sector contracted at an increased rate.

"The modestly weaker services sector survey for June highlights the fact that economic and financial conditions remain very difficult, and relapses in activity are highly likely. This reinforces our suspicion that sustainable economic growth will not develop until 2010 and then only gradually."

There was some more positive news, however, with business expectations rising to a 20-month high in June.

"Companies are now almost as optimistic as when consumers were busy beating down the doors of Northern Rock," commented Colin Ellis, European economist at Daiwa Securities.

Still trying to push that a recovery is about to happen.

The stimulus packages are running drive, they have driven whatever bounce there has been. What next?

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  • 407 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

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