Activity in Britain's dominant services sector slowed at the fastest pace in a more than a decade last month, and firms' confidence in future business weakened to a one-year low, adding to evidence of a stalling economic recovery. Sterling slipped to a one-and-a-half month low versus the dollar after the data, and gilt futures rose to their highest in more than two weeks, as investors bet the figures increased the chance of monetary easing by the Bank of England.
--- Eurozone private sector growth eases
--- India's services sector grows more sluggishly
The Markit/CIPS services purchasing managers' index (PMI) fell to 51.1 in August from 55.4 in July. This was the second biggest fall on record, and confounded forecasts for a gentler drop to 54.0, although the index stayed above the 50 mark that divides growth from contraction.
The only time there was a bigger one-month fall in the index was during the foot-and-mouth disease crisis in April 2001, which hammered the agricultural sector and hurt tourism. "This survey really rings the growth alarm bells," said Howard Archer, an economist at IHS Global Insight. "Even allowing for any impact from the riots and a correction after a surprise spike up in services activity in July, this is a hugely disappointing survey."
Companies cited economic uncertainty and slower growth in new business as the main reasons for weaker expansion last month. Survey compilers Markit said that riots across England in early August played only a minor role in depressing activity. Last week, PMI surveys suggested that UK manufacturing was contracting at its fastest pace in more than two years, while construction activity grew at its slowest rate so far this year. Scotia Capital economist Alan Clarke said he believed August's PMI figures pointed to gross domestic product shrinking by 0.25-0.50 percent in the third quarter, even though the data averages above the 50 level which generally separates growth from contraction.
Businesses' expectations for the future were the weakest in a year, with the relevant sub-index sliding to 65.1 from 67.3 in July. Around 44 percent of respondents forecast a rise in activity from current levels in a year's time, with some expecting to benefit from the London 2012 Olympics, while about 13 percent predicted a decline.
Meanwhile, growth in the eurozone's dominant service sector eased for the fifth consecutive month in August, expanding at its weakest pace in two years, as expectations for the future plummeted, a survey found on Monday. A persistent downturn among smaller members of the 17-nation currency bloc is now spreading to core economies like Germany that have long supported the region's fragile recovery, the data showed. Data compiler Markit said unless business conditions improve, the eurozone economy risks contracting in the fourth quarter. A further contraction in the following quarter would put it back in recession. "The PMI suggests that economic growth in the third quarter is unlikely to improve on the 0.2 percent seen in the three months to June, and a contraction in the final quarter looks a distinct possibility unless business and consumer confidence improve noticeably in coming months," Chris Williamson at Markit said.
The Markit Eurozone Services Purchasing Managers' Index (PMI) nudged down to 51.5 last month from 51.6 in July, its lowest reading since September 2009 but in line with an earlier flash reading. The index has been above the 50 mark that divides growth from contraction for two years.
Optimism about the future also weakened with the business expectations index slumping to 57.6 from July's 63.4, its lowest reading since April 2009. Germany's services PMI fell to a 22-month low of 51.1 although France's moved up to 56.8, despite a PMI released on Thursday showing its manufacturing sector contracted for the first time in two years.
Spain's service sector contracted for the second month running while Italy's shrank for the third consecutive month. The eurozone composite PMI, which combines the services and manufacturing data published last week and is often used as a guide to growth, fell to 50.7, its lowest level since August 2009, from 51.1 in July, down from a flash estimate of 51.1.
Economists polled by Reuters last month predicted eurozone growth of 0.3 percent this quarter. India PMI data released on Monday also showed that country's services sector also grew more sluggishly in August. The HSBC Markit Business Activity Index dropped to 53.8 from 58.2 in July, slowed by a faltering global economy and India's tight monetary conditions.
India's services sector, which includes outsourcing power-houses like Tata Consultancy Services and Infosys, has traditionally shrugged off weak global economic conditions due to its ability to take on more work at a time when companies world-wide seek to lower costs. In China, the August slowdown was mainly driven by a slip in new business flows, as businesses found it more difficult to win new contacts. The new business sub-index fell from July's 52.6 to 51.2, the second-lowest reading in the survey's history, Qu said in a note to clients. Despite the fall, China's PMI reading still implied an annual expansion of 8-9 percent for the service sectors, Qu said.
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