U.K.'s service sector growth slowed more than expected in August, raising concerns that the country is headed for a recession, data from IHS Markit and the Chartered Institute of Procurement & Supply showed.
The seasonally adjusted U.K. services PMI Business Activity Index dropped to 50.6 in August from 51.4 in July. The consensus estimate of economists polled by Econoday for August was 51.0.
A reading above 50 shows expansion, while one below 50 indicates contraction.
Overseas sales improved due to a weaker sterling, according to some survey respondents, but certain European clients reportedly held back from committing to new projects amid Brexit uncertainty. Backlogs of work reduced as employment rose and new orders increased at a slower pace in August.
"So far this year the services economy has reported its worst performance since 2008, with worrying weakness seen across sectors such as transport, financial services, hotels and restaurants, and business-to-business services," said Chris Williamson, chief business economist at IHS Markit.
This increases the likelihood of the U.K. entering a recession as the manufacturing and construction sectors "remained in deep downturns in August," Williamson added. PMI surveys are currently predicting U.K.'s GDP to contract by 0.1% in the third quarter following a 0.2% second quarter decline.
A technical recession occurs when an economy contracts for two consecutive quarters.
