Services sector has held up well, but there are indications that it may 'flat-line' further out - ITEM Club

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Nida Ali, economic advisor to the EY ITEM Club, comments on today’s PMI services figures:

  • Today's services PMI provides some grounds for optimism, with an increase in new work and confidence levels
  • Although there are worrying signs that point to a potential flat-lining of the service sector further out
  • Evidence from PMI surveys suggests that underlying growth in Q3 was probably quite weak

“Despite pointing to a slowdown in growth, the services PMI figures provide some grounds for optimism. Given the tough economic climate, the service sector has held up reasonably well, with an increase in new work and confidence levels. 

“However, a fall in employment, evidence of discounting and below trend growth rates are all worrying signs that point to a potential flat-lining in the sector further out. Given the UK's heavy reliance on services, particularly in light of the ongoing weakness in manufacturing, this would be a setback to the recovery.

“We expect GDP to increase robustly in the third quarter due to one-off factors such as an unwinding of the extra Bank holiday in June and a modest boost from the Olympic Games. But evidence from the PMI surveys suggests that underlying growth was probably quite weak.”