By Andy Bruce
LONDON (Reuters) - Britain's economic recovery probably slowed a touch at the start of the second half of this year, according to a survey published as Bank of England officials are expected to be split on whether to raise interest rates.
Wednesday's Markit/CIPS services purchasing managers' index showed growth among services firms slowed more than expected in July and they hired the fewest staff since March 2014, adding to other recent signs of a cooling in Britain's employment boom.
Still, Britain's service sector expansion was the second-fastest among major European economies.
Taken together with manufacturing and construction surveys earlier this week, the PMI pointed to economic growth of around 0.6 percent per quarter, slightly slower than the 0.7 percent officially reported for the three months to June.
The survey comes a day before BoE officials publish their latest economic outlook and interest rate decision, which economists polled by Reuters predict will be split for the first time this year.
While the weaker PMI will probably not deter hawks on the Monetary Policy Committee from voting for higher rates this week, survey compiler Markit said the signs of cooling in the economy would dissuade the majority from doing so.
The services index fell to 57.4 in July from 58.5 in June, undershooting a Reuters poll forecast for 58.0 but still indicating expansion among services businesses.
Simon Wells, an economist at HSBC, said the decline was unlikely to worry the Bank's rate-setters. "The MPC is more likely to be concerned about the balance of output, with manufacturing and construction weak recently," he said.
"If underlying growth is to stay around or above the pre-crisis trend, which BoE Governor Mark Carney wants to see before raising interest rates, growth in these sectors needs to rise."
Carney said last month it would take sustained growth of more than 0.6 percent per quarter to take up any remaining slack in the economy, a key factor behind any increase in rates.
Wednesday's survey showed Britain's economic upturn is relying heavily on financial services companies, which in July enjoyed their best month since 2013. By contrast, business services like architects and accountants suffered their weakest growth in almost three years.
"A deterioration in service sector growth is the latest in a stream of signals that the economy has slowed as we move into the second half of the year," said Chris Williamson, chief economist at Markit.
New business flowed in at its fastest rate in three months, after falling to a six-month low in June.
The all-sector PMI, a composite of the services, manufacturing and construction surveys, fell to 56.7 in July, its lowest since December 2014, from 57.4 in June.