Page last updated at 17:07 GMT, Thursday, 3 July 2008 18:07 UK

Service sector adds to UK gloom

London cafe
Restaurants are feeling the effect of a consumer slowdown, the institute says.

Britain's service sector shrank at its quickest rate in nearly seven years during June, figures suggest, adding to reports of gloom in the UK economy.

The Chartered Institute for Purchasing and Supply said its index of service sector activity fell to 47.1.

A figure of less than 50 indicates contraction. It was 49.8 in May

The institute has already recorded declines in the construction and manufacturing sectors - the first time all three have shrank since 2001.

It is the second successive month of falls in the service sector - which represents about 75% of the UK economy.

Hotels and restaurants were the types of businesses suffering most, the institute said.

It added that falling demand and cost pressures from surging fuel prices had seen job cuts across the sector.

'Recession risk'

The data was further evidence of a slowing UK economy, economists said.

"The very weak services sector purchasing managers' survey continues the seemingly relentless bad news on the economy, and it is particularly worrying given the sector's dominant role in the key UK economy," said Howard Archer, chief UK economist at Global Insight.

"The latest data indicate that the downturn is deepening, and the risk of recession is currently rising rapidly."

Next week the Bank of England will weigh up whether to change interest rates - against a background of rising inflation but a slowing economy.

The weak service sector activity against a backdrop of rising price pressures encapsulated "the extremely difficult position that the Bank of England is in," Mr Archer said.

Earlier, the institute said that the purchasing managers index for the construction sector slumped to 38.8 in June from 43.9 in May - the sharpest decline in output since the survey began in April 1997.

Meanwhile, the manufacturing sector - which had been defying the gloom - shrank for a second month in a row in June, the institute said.

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