Services gloom puts August rate rise in doubt

Warning signs flashed over the UK’s ebbing growth prospects today, bolstering the case for the Bank of England to hold fire on its first rate rise in a decade next month.

The Chartered Institute of Procurement & Supply’s closely watched snapshot of services firms, the biggest chunk of the UK economy ranging from hairdressers to accountants, showed business confidence close to six-year lows in June amid the slowest growth since February.

The downbeat survey completes a triple-whammy of bad news for the economy after weaker manufacturing and building growth over the month as firms worked under the shadow of a snap general election and the beginning of Brexit negotiations.

Chris Williamson, chief economist at survey compiler IHS Markit, said: “It’s clear that the economy heads into the third quarter losing momentum.”

The latest evidence of weakness, on the 10th anniversary of the last rate hike from Threadneedle Street, puts more pressure on the monetary policy committee to shy away from tightening at August’s pivotal meeting.

June’s meeting saw three of eight members vote for a rate rise and Governor Mark Carney and Bank chief economist Andy Haldane made hawkish comments last week, pushing the pound above $1.30.

The services survey pushed sterling briefly below $1.29 this morning as the weakening economy set back the case for a rise.

Headline inflation stands at 2.9% but today’s survey also signalled services firms putting up prices at their slowest rate for a year.

“Growth is slowing, confidence has slumped and price pressures are easing. Households are meanwhile still battling against existing price hikes and low wages. That’s certainly not your normal recipe for a rate hike,” Williamson added.

Pantheon chief economist Samuel Tombs said “the odds of an interest rate rise this year are very slim”.