UK's service sector growth slows

Tourism seems to be standing up to the threat of terrorism

The UK's service sector grew at its slowest pace for three months in August as record oil prices pushed up fuel and energy bills, a survey says.

The Chartered Institute of Purchasing & Supply (CIPS) said its Services Business Activity Index slipped to 55.2 last month, down from 56.3 in July.

While the figure was below forecasts of 56, it showed that the service sector grew for the 29th month in a row.

Analysts said the data was likely to have little impact on interest rates.

The Bank of England's Monetary Policy Committee is due to meet this week and interest rates are forecast to remain at 4.5% after August's quarter point cut from 4.75%.

Cautious mood

The CIPS said growth was the most prominent in the transport, communications, hotels and restaurants sector, suggesting that the July bomb attacks in London had done little long-term damage to the tourism business.

And it reported increased overseas spending on UK services, helping offset subdued demand at home.

However, the CIPS stressed that the overall mood was still one of caution, amid ongoing worries about the health of the economy and higher wage costs. CIPS said on Monday that its business expectations index also slowed last month.

"Business sentiment about the future took a slight knock amid concerns amongst service providers over the performance of other sectors of the economy," said Roy Ayliffe, director of professional practice at CIPS.

"This fall in confidence was particularly true in the financial services sector."

That dip is being offset by improvements elsewhere, and data last week from CIPS showed that the manufacturing sector had returned to growth last month and that construction activity was growing at its fastest rate for a year.

CIPS predicted that the UK economy as a whole was set to grow by between 0.6% and 0.7% in the third quarter - up from 0.5% in the second quarter.