Services growth flatlining

Triple dip ahead?

Services sector is contracting. Photograph: Getty Images

The Purchasing Managers Index (PMI) for services has fallen to 50.6, indicating growth in the sector has dropped to nearly nothing. Given the proportion of UK growth attributable to the services sector, this has raised fears of a triple-dip recession in the future.

Markit economics writes:

Further growth of UK services activity was recorded during October, although the rate of expansion slowed to a marginal pace. Growth of new business also eased during the month, leading companies to deplete backlogs of work. Meanwhile, staffing levels were reduced for the second month running…

The headline seasonally adjusted Business Activity Index posted 50.6 in October. Although this reading still signalled an expansion in services activity during the month, it was below the mark of 52.2 in September. Moreover, the rate of growth was the slowest in the current 22-month period of rising activity.

Since services were responsible for basically the entirity of last quarter's GDP growth, there is a strong risk that this means that growht for the fourth quarter will be anaemic or worse, as Ernst and Young's Nida Ali writes:

A dismal start to the fourth quarter, with the services PMI pointing to a further slowdown in growth. High competitive pressures, declining backlogs of work and a fall in employment are all signs of underlying weakness, and suggest a flat-lining of the services sector in the coming months.

Today's release is particularly discouraging because the economy is heavily reliant on services to offset the ongoing weakness in manufacturing. As such, these figures support our view that GDP growth in the fourth quarter will be negligible at best.