UK services sector survey indicates recovery is slowing down amid austerity cuts

Monday, July 5, 2010

UK survey indicates recovery is slowing down

LONDON — A snapshot of Britain’s services sector released Monday suggested that the recovery is slowing down, though not enough to drive the country back into recession.

Analysts said the survey showed that business confidence had been undermined by the government’s emergency budget, with its large spending cuts, which was announced last month.

The Markit/CIPS survey recorded the largest-ever drop in sentiment in June, while the business activity index dropped a full point to 54.4. The index measures the percentage of respondents reporting an increase in business.

“While we continue to look for a 0.4 percent-0.5 percent rise in GDP for the second quarter, this may well already represent a peaking in the recovery cycle,” said Paul Smith, senior economist for survey company Markit.

“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.”

The services sector accounts for three-fourths of U.K. output.

Analysts believe that the official GDP data to be released on July 23 will show that Britain posted a third consecutive quarter of subdued growth as it recovers from a deep 18-month recession.

Howard Archer, European economist at IHS Global Insight, said the survey “provides a stark reminder that the UK recovery is still fragile and faces serious headwinds as tighter fiscal policy increasingly kicks in and the Eurozone economies struggle.”

will not be displayed