The UK economy looks to be on course for “steady but sluggish” growth in the third quarter, surveys indicate.
But service sector firms’ prospects indicate a stalling or contracting economy in the longer term, research firm IHS Markit said.
This could be due to heightened uncertainty about the economic outlook and Brexit process, it said.
Firms also face a “relentless burden of inflationary cost pressures” after the Brexit vote-related fall in the pound.
“While the current picture remained one of an economy showing overall resilience in the face of concerns about the outlook, the subdued level of business optimism suggests it’s likely that growth will at least remain modest and could easily weaken in coming months,” said Chris Williamson, chief business economist at IHS Markit.
The IHS Markit/CIPS services Purchasing Managers’ Index rose to 53.8 in July from June’s four-month low of 53.4. A figure above 50 indicates expansion.
While manufacturing exporters have gained from the fall in the pound since last year’s Brexit vote, Thursday’s survey indicated consumer-facing businesses are being hit by a reduction in demand due to stretched household budgets.
The service sector in the UK, which accounts for about 80% of the economy, had subdued output growth as the amount of new work failed to match levels seen earlier in the year, IHS Markit said.
However, the lacklustre performance did not stop employers from taking on more staff, with job creation seeing its strongest growth for a year-and-a-half.
Justin Zatouroff, head of business services at KPMG UK, said: “Despite input price inflation and difficulties in finding staff with the right skills affecting the wider performance of the UK economy, the services sector continues to employ more people and see continued growth in revenue.
“However, the ongoing political and economic uncertainty continues to erode confidence in the future performance of the sector.”