Job cuts accelerate in services sector

2 April 2009

03 April 2009 | Martha McKenzie-Minifie

Jobs in the service sector were lost at a record pace last month even though business confidence is rising, the latest CIPS/Markit UK Services Purchasing Managers' Index shows.

The employment index, where a figure below 50 represents contraction, was at 38.8 last month, down from 40.4 in February. In March last year it was 52.3.

The report found some evidence of shorter working hours being used to prevent job cuts, but the March survey indicated the strongest month-on-month contraction of staffing levels since the data was first collected almost 13 years ago.

CIPS director of professional practice Roy Ayliffe said more of the sector firms were cutting employees' salaries in a bid for survival. "Services businesses are straining every muscle to survive the testing environment," he said. "Operating conditions remain similar to those seen in Q4 of last year when the industry saw around 160,000 jobs culled as the country sank into recession."

Overall activity in the services sector continued its decline last month, although the figure of 45.5 represented a six-month high. This compares with 43.2 in February. In March last year it was 52.1.

Confidence was also on the rise and hit the highest point since the collapse of Lehman Brothers in September last year which triggered the drop in future expectations.

Paul Smith, senior economist at Markit, said upturns in activity and business confidence boded well for an improvement in the UK's gross domestic profit later in the year. "However, bear in mind that the activity index had never been as low as its current reading prior to last October," he added. "Service providers are operating with an understandable psychology of caution, exhibiting a desire to streamline operations to alleviate excess capacity."

The report said average input prices continued to rise, with the weak sterling raising the price of imported goods.

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