05 January 2006 | Rebecca Ellinor
Activity in the UK service sector experienced its strongest rate of expansion in 19 months at the end of 2005.
The latest CIPS/RBS purchasing managers' index (PMI) - a composite indicator in which a number above 50 indicates growth - shows this was backed by a similarly sharp rise in the amount of new business.
The business activity index registered an overall reading of 57.9 in December, up from 55.8 in November. The incoming new business index recorded 58.3, up from 56.3 in November. It was cited by many as the principal factor underpinning higher activity in December.
The increase put pressure on capacity and the outstanding business index recorded 50.2, a marginal rise on November's 49.9.
A heavier workload also led many companies to take on extra staff. The seasonally adjusted employment index rose to 52.3, compared with 51.2 in November.
Input prices increased, mostly as a result of wage rises, an increase in utility bills and the continuation of high energy and fuel prices. However panelists said they responded to this by increasing output charges. The seasonally adjusted average prices charged index posted 53.5.
Sustained sales drive, new products and continued capital investments were all cited as reasons for having confidence in the future prospects of the sector. The year ended with the business expectations index registering 73.2, up from 72.7 in November.
Roy Ayliffe, CIPS director of professional practice, said: "In contrast to the disappointing year end conditions in UK manufacturing, purchasing managers in the services sector saw 2005 close with its highest levels of activity since April 2004.
"A number of drivers were said to be behind this, including successful promotional campaigns, new product development and sharp growth in new business.
"Furthermore, service providers' pricing power strengthened significantly, particularly in the transport sector. As a result, levels of optimism about future conditions in the industry rose to their highest since September."
Growth of activity in the Eurozone services sector reached a 23-month high in December. It registered 56.8, up from 55.2 in November. It improved in all of the big-four Euro member countries, with France showing the strongest pace of expansion for the third successive month, followed by Italy. Spain recorded the weakest rate of increase.
Business activity in the non-manufacturing sector in the US increased in December with the Institute for Supply Management's (ISM) report recording an overall index of 59.8.
The full text of the ISM reports is available at www.ism.ws/ISMReport/index.cfm