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Services slump a 'warning signal' for economy

By Sunita Patel-Carstairs, Business Reporter
Growth in the UK's services sector slumped to an 11-month low in August - with the worst hit businesses including hotels, restaurants, cinemas, gyms and hairdressers, a survey reveals.
Monthly purchasing managers' index (PMI) data from Markit/CIPS UK Services showed weaker than expected growth in the industry with a reading of 53.2, down from 53.8 in July.
A reading above 50 indicates growth. Economists had forecast a figure of 53.5 for the sector, which represents more than three-quarters of output.Chris Williamson, chief business economist at IHS Markit, said the performance had positioned the economy for a "steady but sluggish" 0.3% growth in the third quarter - the same rate as the second quarter.New order volumes increased at the second slowest rate since September 2016, the survey found.Several firms said "fragile business confidence had led to delayed spending decisions among clients".Higher staffing costs, fuel bills and prices for imported items led businesses to raise their prices, but it did not stop employers from taking on more workers, with job creation picking up for the third consecutive month.
Business confidence also reached a three-month high, but remained at a lower level than before last June's referendum when Britain voted to leave the European Union.The outlook comes as Britain's factories reported bumper order books thanks to the weak pound in the wake of the Brexit vote, but the construction sector slumped with subdued business investment and economic uncertainty dragging on demand for new projects.Mr Williamson said: "Robust manufacturing growth means the economy may be rebalancing towards goods production, aided by the weaker pound, but the slowdowns in services and construction send warning signals about the health of the economy."Duncan Brock, director of customer relationships at the Chartered Institute of Procurement & Supply (CIPS), said: "With tighter market conditions and increased operating expenses, businesses had to raise their own prices to customers, reducing their pool of willing buyers."He added: "In all, a month of two halves where some businesses were willing to launch new products and manage price increases, set against those paralysed by economic hesitancy."
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