–Adds Detail, Composite PMI To Version Transmitted At 0905 GMT
–UK Sep Composite PMI 53.2 Versus 52.3 In August
–UK Sep CIPS Manufacturing PMI 52.8 Vs 51.3 In Aug – Markit/Reuters

LONDON (MNI) – The pace of growth in UK service sector picked up
unexpectedly in September, but Q3 growth was at its lowest level since
the second quarter of 2009, the latest Markit/Chartered Institute of
Purchasing and Supply survey, published by Reuters, showed.

The PMI services activity index rose to 52.8 in September from 51.3
in August, well above analysts’ median forecast for a 51.0 outturn and
reversing the run of three monthly declines in the rate of services
growth.

The Markit/CIPS report, however, highlighted the weakness of
service sector growth, with the data supporting the view Q3 GDP growth
is likely to be well below Q2 growth, with CIPS Q3 services growth at
its lowest level for a year and a quarter.

Markit said its weighted average of the construction,
manufacturing, and services indices for September rose to 53.2 in
September from 52.3 in August.

Markit said the average PMI reading in Q3 was consistent with
quarterly GDP growth of around. 0.4-0.5%, a Q3 growth estimate widely
shared by economists, and well below the 1.2% growth seen in Q2.

Chris Williamson, chief economist at Market, highlighted the
further slowing in new business growth, which has fallen back to close
to the 50 contraction/expansion level. The rate of new business growth
was the weakest for 15 months.

“Of greatest concern, new business growth slowed closer to
stagnation and confidence for the year ahead remained at a level only
reached at times of extreme stress. Unless trends in new business show
an improvement soon, the lack of confidence is consistent with a
downturn in business activity in the coming months,” Williamson said.

Employment in the services sector stabilized in September, coming
in at 50, following the sharpest fall for 10 months seen in August.

The survey found evidence of pipeline inflation pressures. Input
costs hit a four-month high, driven up in part by higher utility bills,
but output prices were little changed, showing a squeeze on margins.

Vicky Redwood, at Capital Economics, said CIPS data suggested Q3 UK
quarterly GDP growth could fall to around 0.4%. Capital then expects
growth to fall still further, to around 0.1% or 0.2% on the quarter by
year end.

Other analysts also expressed concern about the slower underlying
pace of growth.

“An upside surprise on the PMI services is heartening, particularly
after the previous three months of falls. However activity is still
subdued, and this does not detract from the evidence that a marked
slowdown in the economy is underway,” Hetal Mehta at Daiwa Capital
Markets said.

–London newsroom 0044 207 862 7491; email:drobinson@marketnews.com

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