LONDON: Britain's service sector growth slowed in September and services providers shed jobs for the first time in 10 months, a survey showed on Wednesday, casting more doubt over the chances of a sustained recovery.
The drop in the services Purchasing Managers' Index (PMI) to 52.2 from 53.7 in August was larger than economists had forecast.
The soft services survey rounds up a set of disappointing PMIs, which pointed to outright contraction in manufacturing and construction. The composite index of the three surveys fell to 51.1 from 52.2, showing only marginal growth for the economy.
The PMI pointed to underlying quarterly economic growth of just 0.1 percent in the third quarter, said Chris Williamson, chief economist at survey compiler Markit.
"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 surveys will fuel the view that the Bank of England will extend its asset purchases once the current 50 billion pound round is completed in November, but they are unlikely to be weak enough for the BoE to announce any action at its meeting on Thursday.
Britain's economy has not fully recovered the output lost during the 2008-2009 financial crisis and slipped back into recession in late 2011. The government's austerity drive and the euro zone debt crisis have been sapping demand.
Most economists reckon Britain exited recession in the third quarter, with sales of tickets for the London Olympics and Paralympics giving an extra one-off boost. The median forecast in a recent Reuters poll was for quarterly growth of 0.6 percent.
Services firms reported a solid rise in new business in September, in part reflecting a bounce after the Olympics-related lull in August, Markit said.
Most firms remained optimistic about future business, with the expectations index rising to 67.0 from 66.5 in August, the highest reading since May.
However, some worried about the fragility of the economy and costs kept rising at a marked pace while most companies were unable to increase their own prices, keeping pressure on profit margins.
Many companies took a cautious approach to staffing and chose not to replace leaving employees, leading to the first monthly dip in service sector employment since November 2011.
"With the mini-boom in the labour market having now come to an end, it seems inevitable that unemployment will start to rise again," Markit's Williamson said.
The recent rise in employment has been one of the few bright spots in Britain and a renewed rise in joblessness would come as a major blow to the government, under attack over its plan to cut the budget deficit with higher taxes and lower spending.
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