LONDON (MarketWatch) -- The pace of growth in Britain's dominant services sector slowed unexpectedly in July, a monthly survey of purchasing managers showed Wednesday, raising questions about the strength of the overall economic recovery amid concerns over the impact of the new government's planned budget cuts. GLOBAL DOW 1,9251,9001,8751,8501,825 MTWTFSMTW • MarketWatch Topics: Greece • Asia Markets | Europe Markets | Lat. Am. • Canadian Markets | Israel Stocks | London • U.S.: Market Snapshot | After Hours TOOLS • Latin American/Canadian indexes • European indexes | Asian indexes MORE ON THE MARKETS • Bond Report | Oil News | Earnings Watch • Currencies | U.S. Economic Calendar The CIPS/Markit services purchasing managers' index slipped to 53.1 in July from 54.4 in June, its lowest level since June 2009. Economists had forecast the index to edge higher to 54.5. The reading means the sector continued to see growth, but at a slower pace. A figure of more than 50 marks a rise in activity, while a figure of less than 50 signals contraction. The British pound (GBPUSD 1.5907, -0.0038, -0.2383%) extended a loss versus the dollar in the wake of the data. The pound remained 0.2% lower at $1.5913. London's FTSE 100 stock index (UK:UKX 5,321, -75.67, -1.40%) was down 1.2%. Read London Markets. "This month's services PMI will undoubtedly raise questions about whether the economic recovery is running out of steam," said David Noble, CEO of the Chartered Institute of Purchasing and Supply. Economists said the data suggest the services sector will make a far weaker contribution to growth in the second half of the year. British gross domestic product grew by 1.1% in the second quarter. "The contribution to GDP growth of the services sector, which was particularly strong in [the second quarter], is likely to be much weaker in the second half of the year," said Chiara Corsa, economist at UniCredit Bank. Industrial activity is likely to remain on a solid footing in the third quarter, as indicated by a resilient manufacturing PMI released earlier this week, Corsa said. But the fast decline in the services reading "underpins our view that third-quarter GDP will definitely be weaker" than the second quarter, Corsa said. The survey found numerous reports of weak demand from the public sector, with contracts cancelled and fewer business opportunities. The survey found a slight decline in payroll numbers for the second time in three months while confidence remained historically low. Confidence took a hit in the wake of the government's June announcement of tax hikes and budget cuts aimed to bring down the British deficit. "To see government spending cuts impact the sector so quickly is concerning given the bulk of cuts are still yet to come," Noble said. "The big question is whether the private sector can plug the big gaps left by the public purse." William L. Watts is a reporter for MarketWatch in London.

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