UK services growth expansion below average

3 December 2010
Eurozone growth reaches three-month high
Fears over public spending cuts as services expansion slows
Eurozone suffers retail sales slide
Ash cloud blamed for slowdown in services growth
Europe's productivity growth at 14-month low

3 December 2010 | Angeline Albert

Despite a rise in growth in the UK services sector, economic uncertainties damaged the market’s confidence and jobs were cut for the second successive month.

Hotels, restaurants, IT, financial services, and transport and communication services have seen an increase in new business, but at a rate well below pre-recession levels, according to Markit/CIPS UK Services PMI.

After accounting for seasonal factors, the headline figure was 53.0 in November, slightly down on October’s 53.2. The data showed growth has been registered for 19 months, but the pace of expansion was below the survey average.

Paul Smith, senior economist at survey firm Markit, said: “With the survey’s data on backlogs and confidence pointing to sluggish expansion in the near-term, we expect the sector to make a reduced contribution to UK economic growth in quarter four. Moreover, the sector’s present growth profile suggests it is unlikely to generate any meaningful job creation and help to offset expected employment cuts in the public sector.”

CIPS CEO David Noble, said: “Profits will be squeezed for many businesses, not least due to higher utility bills and the VAT increase and there is limited scope to pass on any additional costs to customers. Forward-looking indicators are already showing signs of instability, with purchasing managers reporting weak consumer demand. This is worrying as we would expect demand to be higher during the Christmas period.”

Meanwhile the Markit Eurozone Services Business Activity Index showed expansions in Germany, France and Italy that was partly offset by contraction in Spain and weak growth in Ireland. At 55.4 in November, up from October’s eight-month low of 53.3, the PMI signalled the fastest rate of expansion since August.

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