Services sector activity slides in July, IHS Markit says

UK services sector activity started the third quarter on a weak note, with Brexit-related uncertainties and also the recent World Cup and drier weather said to have acted as a drag, the results of a widely-followed survey showed.

IHS Markit's Purchasing Managers' Index slipped from a reading of 55.1 for June to 53.5 in July, missing the consensus forecast for a reading of 54.7 by a wide margin.

According to the survey compiler, growth in output and new orders both decelerated last month, as did the rate of increase input costs, although they remained at elevated levels.

Payrolls meanwhile rose by the least since August 2016, in part due to difficulties filling vacancies, IHS Markit said.

Order backlogs were said to have increased only marginally.

To take note of, some survey respondents said drier weather had boosted sales, particularly those in tourism-related areas of the economy.

But others said that the dry summer and the World Cup had in fact weighed on customer footfall.

Commenting on the data, Tim Moore, associate Director at IHS Markit, said: "Looking at demand fundamentals, service providers commented that Brexit uncertainty had held back new project wins, reflecting risk aversion and a wait-and-see approach to investment spending among international clients.

"Tight labour market conditions and rising wage pressures are also a key challenge for service sector companies."

For his part, Samuel Tombs at Pantheon Macroeconomics said: "The drop back in the services PMI in July, to just below its 12-month average, 53.8, casts doubt on the MPC’s forecast that the economy will grow at an above-trend rate in the second half of this year.

"[...] With growth still mediocre, underlying price pressures subdued and Governor Carney emphasising once again today that the risk of a no-deal Brexit is “uncomfortably high”, the chances of the MPC raising Bank Rate again within the next six months are very remote."