Britain’s economy is losing momentum, knocked by weaker household spending and worries about the global outlook, according to the latest in a string of downbeat business surveys.

Business activity grew at the slowest pace for more than two years in Britain’s dominant services sector last month, according to the closely watched Markit CIPS PMI report.

The authors said it looked as if GDP growth had slowed in recent months and was entering the final quarter of the year at a pace of just 0.3% – less than half the 0.7% seen in the second quarter, according to the most recent official data.

The report’s headline activity index was far weaker than City economists had been expecting. It was 53.3 in September, down from 55.6 in August, the weakest reading since April 2013 and much lower than a consensus forecast for 56.0 in a Reuters poll of economists.

“Weakness is spreading from the struggling manufacturing sector, hitting transport and other industrial-related services in particular. There are also signs that consumers have become more cautious and are pulling back on their leisure spending, such as on restaurants and hotels,” said Chris Williamson, chief economist at survey compilers Markit.

“Wider business service sector confidence has meanwhile also been knocked by global economic worries and financial market jitters.”

The pound weakened against the euro and the dollar after the report, which economists saw as providing further reason for the Bank of England to hold off raising interest rates from 0.5%.



Borrowing costs have been at a record low for more than six years. While the Bank’s governor Mark Carney had recently warned mortgage holders to prepare for a rise in interest rates, economic news since than has pointed to a slowdown in the domestic and global economies.

Markit, which compiles the services report, said taken together with indicators from the smaller manufacturing and construction sector, it suggested GDP growth slowed to 0.5% in the third quarter of this year.

Financial markets will get some insight into the Bank’s latest thinking on the outlook when the monetary policy committee (MPC) announces this month’s decision on interest rates on Thursday alongside minutes from its meeting. Economists expect only one of the nine committee members will vote for a hike, with the rest choosing to keep rates at 0.5%.

Referring to the latest PMI reports, Michael Saunders, economist at Citi, said: “These surveys suggest that growth remains comfortably positive, but is no better than average. Given all this, the MPC’s statement on Thursday is likely to show a further drift to a softer outlook for both growth and inflation.



New business growth slows

September saw the weakest rise in new business since April 2013, as shown on this chart of the report’s new business index. Photograph: Markit

The poll of companies in the service sector, which spans finance to restaurants, showed new business was also coming in at the slowest pace since April 2013.

At the same time, services businesses had to contend with rising costs, mainly down to salary pressures, but the prices they charged their customers rose only “marginally”, the report said. Hiring picked up to grow at the fastest pace for three months.

The news comes against the backdrop of growing concerns about the global economy losing momentum, hurt by a downturn in China and volatility on financial markets. The International Monetary Fund’s boss, Christine Lagarde, warned last week that a slowdown in big emerging market countries will cut global growth to its lowest level since the deep recession of 2009.

In a separate survey overnight, the chief financial officers (CFOs) of some of Britain’s biggest companies reported a sharp rise in uncertainty facing their businesses and said that they had scaled back their expectations for investment and hiring over the coming year. The poll by consultancy Deloitte found 60% of CFOs believed the Chinese downturn would hurt their business.