Services sector weakness likely to drag UK's GDP down in third quarter

UK's economy is likely to face tougher times if UK's prized service sector slows down. Services form large chunk of net exports and partially shield's UK's massive deficit in goods trade. Moreover a persistent slowdown in services activity will reduce GDP growth and it is the only sector among three (Construction, manufacturing & services) to cross above its 2007 peak.

According to latest report from Markit economics -

• Service sector expanded at weakest pace in two years. Business activity index dropped to 55.6, lowest in 27 months. Slowdown is a bit rapid, as the index was at 57.4 in July.
• New business received grew for 32nd consecutive month, however pace of growth in new business orders weakest since April.

A rate hike prospects from Bank of England remains quite far away to pose doubts on as FED hike looms ahead.

However it should be noted that all of the PMI numbers (manufacturing, construction, services) declined in August, suggesting, there could be economic slowdown in third quarter.

Focus will be on September data to search weather this slowdown marks a shift down in economic activity or just an isolated seasonal effect.