More gloom as service sector slumps

3 July 2008 11:28am

The deluge of economic woe continued as data showed the UK's dominant service sector shrinking at its quickest rate for nearly seven years during June.

The Chartered Institute of Purchasing and Supply (CIPS)/Markit services index - which measures overall activity - dipped 2.8 points to 47.1 last month, the lowest since October 2001. A reading above 50 represents growth.

The gloom comes after CIPS also recorded activity falls for the UK's manufacturing and construction sectors in June - the first time all three industries have shrunk since November 2001, in the aftermath of the 9/11 terror attacks.

It is the second successive month of falling activity for the service sector, which represents around 75% of the UK economy.

Paul Smith, senior economist at Markit Economics, said the results showed the UK economy was heading towards "recession territory".

"Following on from the dreadful figures for both construction and manufacturing, the services report confirms the broad-based deterioration in UK economic activity."

CIPS said there were net job cuts across the UK service sector last month as it buckled under the pressure of rapidly rising costs and deteriorating demand. Oil prices piled pressure on fuel and energy costs.

The survey's new business index showed 45.1 - the lowest reading in its 12-year history.

Companies reported that cost pressures and the uncertain economic climate were weighing on clients' spending by depressing confidence and leading to the postponement of investment decisions.

Hotels, restaurants and financial intermediaries fared particularly badly, CIPS said.

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