Services slowdown takes heat off Bank of England to raise interest rates

Britain's dominant services sector grew far less strongly than expected in August which, added to poor manufacturing data earlier this week, took pressure off the Bank of England’s Monetary Policy Committee to raise interest rates quickly.

Services grew at the slowest rate for two years in August with the Markit/Cips survey coming in at 55.6, down from 57.4 in July and well below economists’ forecasts of 57.7.

Any measure above 50 represents growth but this was a significant miss.

As a result, Markit said overall economic growth in the third quarter is likely to fall to just 0.5%, down from 0.7% in the second quarter to the end of June.

“Even after allowing for usual seasonal influences, August saw an unexpectedly sharp slowing in the pace of economic growth,” Markit’s chief economist, Chris Williamson, said.

“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.”