Recovery in services sector slows in June

Last month's leap above the 50-mark that denotes growth raised hopes that Britain may be one of the first major economies to emerge from recession.

While a pause in momentum may not be a huge setback given the pace of improvement in recent months, it will play into policymakers' fears that a sustained recovery is far from assured.

"The sideways movement in the headline business activity index in part reflects some consolidation," said Paul Smith, senior economist at Markit.

"Nonetheless, the underlying data indicate that the business climate remains fragile with tight lending conditions and rising unemployment remaining key threats to continued service sector recovery."

There was little market reaction to the figures with investors convinced the Bank of England will keep interest rates at record lows for some months to come.

Neither does the Bank appear in any rush to reverse its policy of pumping money into the economy to boost demand. Indeed, the current debate is whether the Bank will raise its target for quantitative easing with many economists expecting an increase to 150 billion pounds to be announced as early as next week.

FRAGILE RECOVERY

The economy shrank at its fastest pace in more than 50 years in the first three months of this year but better data in recent months has generated hope of a return to growth in either the second or third quarters of this year.

Nevertheless, economists have also cautioned that much of the recent pick-up in activity could be due to re-stocking after firms ran down inventories last year.