Member Article

UK service sector activity drops

The UK’s service sector suffered a fall in activity last month, according to a survey from Markit and the Chartered Institute of Purchasing & Supply (CIPS).

The organisations said December showed a “modest reduction”, after activity came in at 48.9, down from 50.2 in November.

Last month’s contraction was reportedly the first in the last two years, since December 2010’s “snow-related” decrease in activity.

Markit and CIPS suggested the fall was down to a decrease in new work and a difficult trading environment, while work “backlogs” are being cut back and employment figures remain relatively stagnant.

Markit’s chief economist, Chris Williamson, said: “The first fall in service sector activity for two years raises the likelihood that the UK economy is sliding back into recession.

“The services PMI follows an equally disappointing construction survey for December, leaving manufacturing – which accounts for just 10% of the economy – as the only bright spot.”

Data from the three survey sets displayed what Markit called the “worst quarterly performance for three-and-a-half years”.

Mr Williamson added: “Bad weather is likely to have played a role in dampening service sector activity in December, but the fact that incoming new business dropped for a second successive month suggests that underlying demand remains very weak and that activity may continue to fall in the New Year.

“The service sector is also cutting employment in the face of weak demand and an uncertain outlook suggesting unemployment may soon start to rise again as private sector lay-offs add to public sector job cuts.”

David Noble, chief executive at CIPS, commented: “The service sector ended 2012 on a weak note suffering its first contraction in two years, ensuring confidence remained at its 11-month low recorded last month and signalling a distinct lack of momentum going into 2013.

“This tentative outlook was underlined by reports of weak new business pipelines and budget restrictions in the final quarter of last year, to ensure that activity posted its weakest quarterly performance in 2012.

“Businesses are holding back on investment, leading to falls in employment and increased levels of spare capacity.

“At the same time, costs are increasing and businesses are unable to pass these on because of competitive pressures.”

This was posted in Bdaily's Members' News section by Miranda Dobson .