August’s Markit/CIPS survey of UK service providers indicated a steep slowdown of activity growth, as an increasingly fragile economic environment undermined confidence and gains in new business. Activity rose to the least extent of 2011 so far, and confidence in the future was the weakest in a year. Increased caution amongst service providers and evidence of spare capacity led to another slight fall in employment.
The headline index from the survey, the seasonally adjusted Business Activity Index, plunged 4.3 points in August to register 51.1, only modestly above the 50.0 no-change mark. The decline in the index was greater than those seen in the autumn of 2008 (following the collapse of Lehman Brothers) and was surpassed only by the foot-and-mouth related fall of April 2001.
The FTSE 100 fell 2.35% to 5,167 at 7 AM EST. The Dax was down 3.91% to 5,323.
The data will raise the questions again of 1) whether UK austerity measures will be enough to close its national deficit if GDP has begun to contract, or 2) whether the country should invest in stimulus, even if it raises to deficits, to keep the economy from a sharp downturn
Douglas A. McIntyre
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