Bloomberg News

U.K. Services Weaken More Than Forecast as Confidence Falls

July 04, 2012

U.K. services growth slowed more than economists forecast in June and “fragile” demand from customers undermined confidence.

A gauge of services activity based on a survey of purchasing managers fell to 51.3, an eight-month low, from 53.3 in May, Markit Economics and the Chartered Institute of Purchasing and Supply said in a report in London today. The median forecast of 25 economists in a Bloomberg News survey was for a reading of 52.9. A measure above 50 indicates expansion.

Reports by Markit this week showed manufacturing and construction contracted in June, suggesting the U.K. may still be mired in a recession as the euro-area crisis undermines confidence. The Bank of England’s Monetary Policy Committee will probably expand its quantitative-easing program tomorrow, according to a survey of economists.

The three industry surveys are “now collectively down firmly into territory that has triggered action from the MPC in the past,” said Markit chief economist Chris Williamson. Today’s report “probably cements the case for further stimulus.”

Markit said there was a slowdown in new business at services companies in June, companies cut prices and there was a “modest” increase in employment. While Europe’s debt crisis curtailed investment, “temporary factors” may also have played a part in the slowdown in activity in June, Markit said, citing the additional public holiday for the queen’s Diamond Jubilee at the start of the month.

Euro-Area Slump

A separate report from Markit today showed euro-area services and manufacturing output shrank for a fifth month in June, adding to signs that the region’s economic contraction deepened in the second quarter. A composite index for both industries in the 17-nation euro area rose to 46.4 from 46 in May, higher than an initial estimate published on June 21.

An index published by Markit this week showed U.K. factory output shrank for a second month in June, while construction contracted at the fastest rate in 2 1/2 years. The gauge of manufacturing rose to 48.6 from 45.9 in May, while the measure of building output fell to 48.2 from 54.4.

The U.K. economy shrank for a second consecutive quarter in the three months through March. The Office for National Statistics will publish the first estimate of second-quarter gross domestic product data on July 25.

The data “may show negative U.K. GDP growth” in the three months through June, British Chambers of Commerce chief economist David Kern said yesterday.

The Bank of England will probably raise its target for asset purchases by 50 billion pounds ($78 billion) to 375 billion pounds, according to the median estimate of 41 economists in a Bloomberg News survey. Economists in a separate poll forecast officials will leave the benchmark interest rate at a record low of 0.5 percent. The bank will announce the decision at noon in London tomorrow.

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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