The growth of the UK service sector slumped in August to be

the slowest of 2011 so far, it emerged today.

The latest Markit/CIPS survey said the rate of growth was the

slowest since December 2010's weather-related reduction in the sectors covered

which include hotels, restaurants, computing and IT, business services and

transport and communication.

The headline index from the survey -

the seasonally adjusted Business Activity Index - fell 4.3 points in August to

51.1.

The decline is greater than those seen

in the autumn of 2008 - following the collapse of Lehman Brothers and was

surpassed only by the foot-and-mouth related fall in April 2001.

Today's survey also shows that business confidence in the

UK's service sector was the lowest for a year with worries over the impact of

government spending cuts.

 David Noble, chief executive officer at the Chartered

Institute of Purchasing and Supply, said: "This eye-watering decline in this

month's Service PMI (purchasing, managers' index) shows the full impact of

current weaknesses and instability in the wider economy.

 "As the sector clings onto growth, purchasing managers are

also suffering from a wavering trend in new business. Anarchy on the streets in

some parts of the UK during August also didn't help to stave off the loss in

momentum since July.

 "Cut throat competition means that companies are unable to

fully pass on higher costs to customers and continue to feel the need for

marketing and, in some instances, discounting initiatives to fill in the

gaps."

 He said while it was typical in meagre times for businesses

to sacrifices profits to protect sales, it wasn't sustainable in the longer

term.

 However, he added: "With a number of businesses, particularly

those in the South East, hopeful about the impact of the 2012 Olympics, there

are perhaps better times to look forward to.

 "Lower input prices and a further easing of inflation would

also be extremely welcome at a time when it's needed most."

 Paul Smith, senior economist at survey compilers Markit, said

the drop in the headline index - the seasonally adjusted Business Activity Index

- was the worst since the foot and mouth crisis in 2001.

 "Although the slowdown may reflect a reaction to a solid

expansion in July and minor impacts from riots and public disorder in early

August, there can be little doubt that the underlying growth profile of the

sector has weakened in recent months," he said.

 "Allied with soft manufacturing data and a slowdown in

construction growth, the overall picture provided by the latest PMI surveys is

one of a stuttering UK private sector.

"With the economic climate so uncertain, this continues to

impact on confidence, while job losses were again reported as firms remain

reluctant to replace leavers or are forced to cut positions in response to

excess capacity."