A survey has shown that growth in the UK's services sector quickened unexpectedly in September from a 16-month low. But the report also signalled that the outlook is poor, with the weakest inflow of new business in over a year.
The figures are unlikely to alter expectations that the Bank of England will keep its ultra-loose policy stance unchanged later this week and probably well into next year.
The headline index of the Markit/CIPS services PMI increased to 52.8 from 51.3. Economists had expected a slight fall to 51.
But planned cuts to government departments' spending of around a quarter over the next five years already seem to be affecting the firms covered in the survey, which excludes most activity in the public and retail sectors.
'Inflows of new work and prospects for the year ahead have been hit by widespread worries that the recovery is losing steam, cancelled government contracts and the prospect of more cuts to come,' said Markit's chief economist, Chris Williamson.
The new business component slowed to a 15-month low of 51.3 from 51.4. Business expectations for the coming year increased to a four-month high but remained subdued by historic standards.
'Unless trends in new business show an improvement soon, the lack of confidence is consistent with a downturn in business activity in the coming months,' Mr Williamson said.
Markit said that third-quarter service sector output was the weakest since the second quarter of 2009. This bodes ill for third-quarter UK GDP growth, which economists already expect to slow sharply from a nine-year high of 1.2% in the second quarter as temporary factors fade and spending cuts bite.
