Double-dip recession fears grow as services sector sees worst slowdown in ten years

Fears of a double-dip recession were fuelled today as it emerged the UK's powerhouse services sector has suffered its worst slowdown in activity in 10 years.
The Markit/CIPS Purchasing Managers' Index (PMI), where a reading above 50 indicates growth, showed services activity sharply fell to 51.1 in August from 55.4 in July.
And to add fresh misery to the economic outlook, European markets slumped today after being unnerved by fresh sovereign debt fears after borrowing costs in Spain and Italy showed signs of creeping up again.

Sluggish: The services industry has seen a sharp drop in activity. blamed on low business confidence

The FTSE 100 plummeted, as at its close it was down 189.45 at 5102.58.
London's leading shares index had plunged into the red on opening as shares in Britain's banks were also weighed down by fears over a lawsuit launched against them in the United States.
Concerns for recovery mount as vital services sector suffers biggest slowdown in decade
And renewed global recession fears were also a big factor in the grim session in which Barclays lost 7 per cent, Lloyds Banking Group dropped 6 per cent and Royal Bank of Scotland more than 10 per cent.

Services slowdown: This graph shows the volatile behaviour of the industry, which sharply dropped because of a lack of confidence

The slowdown in growth in the UK services industry was driven by economic uncertainty and a weak underlying trend in new business, Markit said.
The volume of new orders rose at its slowest rate since February, the survey said, while business confidence was at its lowest this year.
It will come as a huge blow to the sector, which had experienced a promising year, showing seven months of consecutive growth for the services industry.
The drop was the worst for the services sector, which makes up around 75 per cent of the total economy, since the foot and mouth crisis of 2001.
It's drop was greater than declines seen after the collapse of Lehman Brothers bank in 2008.
Economists said the dismal figures pointed to a potential contraction in gross domestic product (GDP) in the third quarter of the year.

Fears: Weak figures in businesses could indicate the very real possibility of a double dip recession

The UK economy grew at a meagre 0.2 per cent between April and June, which included 0.5 per cent growth for the services sector.
Samuel Tombs, UK economist at Capital Economics, said: 'With growth in all sectors of the economy now very weak the chances of a double-dip in overall GDP are high and rising.'

FTSE PLUNGES OVER LAWSUIT FEARS

The FTSE plunged into the red today as shares in Britain's banks were hit by fears over a lawsuit launched against them in the U.S.
Royal Bank of Scotland and Barclays both lost more than 7 per cent, while HSBC shed more than 1 per cent after the Federal Housing Finance Agency (FHFA) filed claims against them and 14 other banks over the sub-prime mortgage scandal.
The wider FTSE 100 Index, still reeling from a dismal jobs report in the US on Friday and following a weak session in Asia, fell by more than 1 per cent in early trading.
The FHFA claims the banks misrepresented the quality of billions of dollars of home loans sold to America's state-backed mortgage giants Fannie Mae and Freddie Mac.
RBS has said the allegations are unfounded and it will defend them vigorously.
 

This would increase pressure on the Bank of England to inject more cash into the economy to jump-start the recovery and could affect interest rates.
The plummeting figures revealed a volatile time for the market, as only a month before the sector had steadily grown at its strongest rate in four months, giving the economy a much-needed boost.
The Markit/CIPS PMI figures last months showed services activity rose from 53.9 in June to 55.4 in July - above its long-term average.
Growth in the sector in June had been driven by business services and IT companies as new business levels rose to a three-month high.
The British Retail Consortium said the sector was being squeezed by rising debt levels, falling sales and soaring prices, triggering heavy discounting and a price war on the high street.
Elsewhere, there was a further blow to UK jobs prospects as the service sector reported a further drop in employment.
There was some respite for the Bank of England on the inflation front as input prices eased in August, growing at the slowest rate since November last year.
The Bank is grappling with high inflation, which at 4.4 per cent in July is more than double the Government's 2 per cent target.
Howard Archer, chief UK and European economist at IHS Global Insight, said the survey fuelled expectations the Bank will hold interest rates at 0.5 per cent and increase its Quantitative Easing (QE) programme.
But he added further QE still seems unlikely at Thursday's meeting of the Bank's Monetary Policy Committee 'given still significant near-term inflation concerns'.
The Bank currently has its QE package at £200 billion and has faced lone calls from MPC member Adam Posen to increase the stock by an additional £50 billion.