Services Sector Slows Amid GDP Concerns

Growth in Britain's service sector slowed in September, casting more doubt on the chances of a sustained economic recovery.

The monthly index monitoring optimism within the services sector dropped to 52.7 from 53.7 in August, according to Markit - a greater fall than most economists expected.

A reading above 50 indicates growth, while one below 50 indicates a contraction in activity.

The data comes days after disappointing figures relating to the manufacturing and construction industries which pointed to an outright contraction in both sectors.

Markit's chief economist Chris Williamson said the figures suggest the UK economy has barely expanded in the third quarter.

"Official data are likely to show a stronger GDP rebound, reflecting a technical bounce-back from second quarter weakness arising from extra Jubilee holidays," he said.

"But the PMI provides an insight into the underlying trend of the economy, and warns of near stagnation."

The UK slipped back into recession towards the end of 2011, but most economists expect the economy to have recovered in the third quarter with sales of tickets to London 2012 giving a one-off lift.

This post-Olympics boost helped services companies report a rise in new business, Markit said.

But concerns remain over the fragility of the economic climate given the ongoing eurozone debt crisis and Government austerity measures.

As a result, September saw the first fall in employment in the sector since November last year, as companies chose not to replace leaving employees.

"With the mini-boom in the labour market having now come to an end, it seems inevitable that unemployment will start to rise again," Mr Williamson added.

A renewed rise in joblessness would come as a major blow to the Government, which has come under attack for its plan to cut the budget deficit with higher taxes and lower spending.