Hotels and restaurants struggled badly during June, as the UK's service sector shrunk at its quickest rate for nearly seven years, latest statistics have revealed.
The index of overall activity for services, complied by the Chartered Institute of Purchasing and Supply (CIPS) and Markit Economics, dipped 2.8 points to 47.1 last month, the lowest since October 2001. A reading above 50 represents growth.
It is the second successive month of falling activity for the service sector, which represents around 75% of the UK economy and includes hotels, pubs and restaurants.
CIPS said there were net job cuts across the UK service sector last month as it buckled under the pressure of rapidly rising costs and deteriorating demand. Oil prices piled pressure on fuel and energy costs.
Hotels, restaurants and financial intermediaries fared particularly badly, CIPS said.
Paul Smith, senior economist at Markit Economics said the results showed the economy was heading towards "recession territory".
"Following on from the dreadful figures for both construction and manufacturing, the services report confirms the broad-based deterioration in UK economic activity," he said.
By Daniel Thomas
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