Similar reports earlier this week showed the United Kingdom "s manufacturing sector is in its worst downturn since 2012, while the construction industry contracted for a fourth straight month".
Forward-looking indicators for the services survey suggest not long.
New business for Japanese service providers expanded, albeit at its slowest pace in over a year, while employment growth edged down to its slowest since February last year. The indices vary between 0 and 100, with a reading above 50 indicating an overall increase compared to the previous month, while a reading below 50 indicates an overall decrease.
A survey on Monday from major exporter Germany showed the manufacturing sector in Europe's largest economy remained in contraction in August although Wednesday's figures showed its service industry remained robust.
Overall inflation is not predicted to rise above that goal until early next year.
With the U.K.'s path out of the European Union still unclear, and the prospect of a general election growing, IHS Markit's chief business economist said a rebound in activity is unlikely over coming months.More news: Princess Charlotte, 4, starts school
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The only other time that the PMI survey has recorded a steeper downturn was during the SARS epidemic in 2003 and the global financial crisis in 2008, said Bernard Aw, principal economist at IHS Markit.
The survey showed that many service providers were relying on backlogs of work to sustain growth as new orders weakened to reach their slowest level in seven months, with new work from overseas being particularly sluggish. "Both manufacturers and service providers believe that supportive public policies can help shift growth momentum into a higher gear in the coming 12 months", Lima said.
Business morale across the service sector worsened to hit its lowest level in nearly five years and the loss of confidence could slow down investment and job creation in coming months.
The GDP growth rate for the first three months of the current fiscal was at 5 per cent, which is the lowest in 26 quarters. Despite easing from their July levels, the increase in new export orders remained stronger than that seen for total new work.
This index is a combination of manufacturing and services PMI.
The reading means that the services sector had only a "marginal expansion" in output in August, IHS Markit said.