5 July 2010 | Lindsay Clark

Growth in the service economy slowed in June, with confidence falling sharply, the latest Markit/ CIPS UK Services Purchasing Managers’ Index (PMI) found.

The survey showed the rate of business activity slowed in June. The index came in at 54.4; May’s figure was 55.4. Although this represents a growing market – since a PMI of 50 indicates no change – expansion has slowed for three times in the past four months.

The survey also showed that business confidence for future activity suffered its greatest monthly drop in its 14-year history.

CIPS CEO David Noble said: “June’s data painted a worrying picture for the UK services sector as confidence suffered a serious blow following the government’s emergency spending cuts. Purchasing managers voiced grave concerns that budget cuts and VAT rises will tip the scales and amplify the likelihood of the UK slipping back into recession.

“Though new business continued to grow this was at a subdued rate and kept employment levels firmly grounded. It seems companies are increasingly hesitant to commit in this time of political and economic uncertainty.”

Paul Smith, senior economist at Markit and author of the UK Services PMI said the results had serious economic implications. “While we continue to look for a 0.4 to 0.5 per cent rise in GDP for Q2, this may well already represent a peaking in the recovery cycle. Confidence declined to the greatest extent in 14 years of data collection in reaction to the government’s austere emergency Budget, with concern expressed that the fiscal tightening could push the country back into recession.

“Indeed, the less positive outlook appears to be already affecting decision-making, with some clients reportedly reluctant to commit to new business at the present time.”