Growth in the UK services sector slowed sharply in August, after data from the construction and manufacturing sectors also disappointed last week. Richard Driver, analyst for Caxton FX, said: “Last month’s strong UK services figure was the saving grace of the PMI releases; it represented a promising start to the quarter. Monday’s figure confirms suspicions that July’s pace of growth was just an upside blip and that the UK economy is indeed going to slow up even further in the second half of this year. The manufacturing sector contracted again last month, and the construction sector slowed significantly. Without robust growth in the key services sector, a UK recession seems highly likely.
The riots will be partly responsible, according to Driver: “The public disorder we saw in August will have hurt the services sector to a degree, but this should not blur the fact that the UK economy is quite clearly stalling. Confidence is very low, activity is weak and unemployment is high. Disregarding last December’s freak freeze-out, this is the worst UK services figure since April 2009.
He concluded: “This morning’s poor figure will probably not force the Bank of England’s hand on further quantitative easing just yet; we are still in expansionary territory. However, the downtrend remains intact and monetary easing before the year’s end remains on the cards.”
Sterling hasn’t suffered from August’s weak set of growth figures, said Driver: “Wider global concerns have taken the heat off the UK economy a touch in the past week or so, and sterling has been gaining on the euro, if not the US dollar. The market has got bigger fish to fry with the US economy on the verge of recession and the second Greek bailout coming back into the spotlight, so sterling safe-haven status is providing a little support at present. Nonetheless, longer-term sterling looks set to struggle, particularly against the euro.”
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