The UK’s services sector grew at its slowest rate for six months in July as subdued consumer demand and higher interest rates weighed on businesses, according to new data.

The influential S&P Global/CIPS UK services PMI survey showed a reading of 51.5 last month, down from 53.7 in June.

Any reading above 50 indicates growth for the sector, and below means decline.

The reading, which was in line with economist predictions, was the third consecutive slowdown in growth, pointing towards potential stagnation in the economy.

Tim Moore, economics director at S&P Global Market Intelligence, said: “The loss of momentum signalled by service providers in July suggests that the UK economy is set to flatline at best in the coming months as higher borrowing costs take a bigger toll on consumer spending and business confidence.

“Service sector companies saw the weakest rise in new work for six months, while job creation slipped as some firms responded to softer market conditions by putting the brakes on hiring.”

Surveyed firms said they continued to see some growth amid “resilient household spending on travel and leisure services.

However, they added that trade was also being knocked by reduced confidence among consumers and business customers.

New order volumes grew at the weakest rate since January as firms suggested rising interest rates, which are expected to increase again later on Thursday, were a reason for cautious demand.

Business also reported that operating costs and selling prices eased back but highlighted pressure from higher salary payments in July, which could add to inflation concerns among policy-makers.

John Glen, chief economist at the Chartered Institute of Procurement & Supply (CIPS), said: “The driver of this poor result as the sector headed into a period of inertia was the underlying weaknesses in the UK economy.

“In response to interest rate hikes through the summer, businesses were re-thinking their investment plans and focusing on paying higher wage bills and keeping up with their brutal businesses costs instead of expanding their portfolio of products.”