Slow growth for the service industry

The Markit/CIPS services PMI headline activity index fell to 53.1 last month from 54.4 in June, its lowest level since June 2009 and worse than economists' forecasts of an unchanged figure.

The business expectations sub-index rose only slightly, to 64.9 in July, after suffering a record monthly fall to a 15-month low of 64.0 in June.

The Government presented its emergency Budget in June containing sweeping austerity measures designed to tackle Britain's bulging budget deficit, which is likely to translate into less business for the services industry.

"Behind the weaker growth profile for the service sector is a failure of confidence to rebound from the record fall seen in the aftermath of the emergency budget," said Paul Smith, a senior Markit economist.

"Expectations about prospects for the coming year appear to have down-shifted... with reports of cancelled contracts and reduced enquiries adding to the sense that tough times lie ahead."

Still, the business expectations figure, which shows forecasts of business activity in a year's time, was still well above the 50 points level that divides growth from contraction.

The employment component of the survey, which covers businesses such as restaurants, hotels and financial services, but excludes shops and the public sector, pointed to contraction in July after minimal growth in June.

The rate of inflation fell slightly for both prices charged by firms in the service sector and for their input cost, such as wages. That may offer encouragement to the Bank of England, which has held rates at record lows while keeping a close eye on stubbornly high inflation.

Growth in Britain's manufacturing sector eased slightly in July, a sister survey from Markit/CIPS showed on Monday, with Eurozone wobbles weighing on exports, but the headline figure still beat forecasts and remained indicative of buoyant growth.