U.K. Services Growth Unexpectedly Slows to Lowest Since 2013

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U.K. services grew at the weakest pace in more than two years in August, underscoring signs the economy is slowing in the third quarter.

An index of activity dropped to 55.6 from 57.4 in July, Markit Economics said on Thursday. While that’s above the 50 level that divides expansion from contraction, it’s the lowest reading since May 2013 and compares with a prediction of 57.7 in a Bloomberg survey of economists. An index of new orders dropped to a 28-month low.

The report follows Markit data that showed manufacturing growth cooled in August and comes as Bank of England officials prepare to take their decision on interest rates next week. Policy makers have to weigh inflation that is currently well-below target and the deflationary impact from cheaper oil and China’s slowdown, alongside the risk of price pressures stemming from rising salaries and a tightening labor market.

“August saw an unexpectedly sharp slowing in the pace of economic growth,” said Chris Williamson, chief economist at Markit. “A marked waning of prices pressures other than wages during the month suggests the inflation outlook is benign and is therefore likely to help tip the argument towards postponing any rate hikes until the wider global economic picture becomes clearer.”

The pound fell after the data were published, and traded at $1.5258 at 9:34 a.m. London time, down 0.3 percent from yesterday.

Business Expectations

Williamson said the combination of Markit’s services, factory and construction surveys indicate the pace of economic expansion is set to slow to 0.5 percent this quarter, from 0.7 percent in the three months through June.

Markit’s gauge of new business in the services industry fell to 56.2 in August, the lowest since April 2013, from 58.6 in July.

The survey also showed business expectations among service companies at the lowest since February, Markit said. Input-price inflation slowed for a third month to the weakest since January and firms increased charges “only fractionally,” it said.

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