Construction bounce ends

Published:  05 August, 2010

LONDON: The threat of a double-dip recession intensified today with figures showing that growth in the service sector, which spans businesses from insurance to hotels and restaurants, fell more than expected to a 13-month low in July, according to the Markit/Cips UK services purchasing managers' index.

Chris Williamson, chief economist at Markit said: "This has hugely increased the risks of a double-dip recession, perhaps even by the end of the year."

This follows yesterday's report from the Chartered Institute for Purchasing and Supply that recovery in the building trade has slipped sharply.

Its latest poll for of the sector showed overall levels of confidence and activity fell from a reading of 58.4 in June to 54.1 in July, the sharpest fall since February last year.

The slowdown indicates that the recent revival is unsustainable although the sector is likely to expand over the next six months to a year. Business expectations have slumped from a poll reading of over 75 a year ago to 56.7 now.

Sarah Ledger, economist at Markit, said: "Perhaps more concerning was the continued impact on confidence that impending public sector spending cuts and the scheduled VAT rise have had. This was highlighted by the solid reduction in employment indicated during the month, as construction companies continue to review costs carefully."

The Markit/Cips surveys showed that there was slower expansion in July in house building and commercial activity, while civil engineering only grew marginally. The outlook for employment also darkened.

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