By Daniel Hunter

July’s Markit/CIPS UK Services Purchasing Managers' Index (PMI) survey signalled continued growth of the UK service sector economy, albeit at a modest rate as temporary factors and a tough economic climate continued to weigh on activity and business.

Margins remained under pressure as strong market competition led to discounting of charges, while input prices continued to rise — in spite of evidence of falling fuel costs.

After accounting for seasonal factors, the headline Business Activity Index registered 51.0 in July, down from 51.3. Although above the 50.0 no- change mark for the nineteenth consecutive month, July’s reading was the lowest in that period.

Temporary factors — poor weather in the first half of July and, in some instances, disruption in the lead up to the Olympics — combined with a tough economic climate depressed growth during July.

Where a rise in activity was recorded, this was in part linked to a natural increase following the additional bank holidays in June and also to gains in new business. According to survey respondents, promotional work and the release of new products supported contract wins in July. However, there were reports that the operating environment remained challenging, with companies indicating that uncertainty amongst clients had led them to defer making business decisions.

“Slower growth of activity is somewhat disappointing following the disruption of the Queen’s Jubilee in June," Paul Smith, Senior Economist at survey compilers Markit, said.

"Although anecdotal evidence suggests that a number of temporary factors remain in play — poor weather in the first half of the month and pre-Olympics disruption were reported in some quarters — companies continued to indicate that underlying demand remains fragile.

“Moreover, reflective of the difficult environment and ongoing market competition, service providers continue to reduce their output charges and, with input price inflation persisting, margins remain under pressure.

“Combining the latest services data with figures from the sister construction and manufacturing surveys, the All-Sector PMI dropped below 50.0 for the first time in 39 months in July. Not withstanding aforementioned temporary factors, the latest data further highlight the loss of momentum in the UK economy following the relatively bright start to the year.”

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