Service sector grows despite uncertain economy

5 December 2011

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5 December 2011 | Angeline Albert   

The UK services sector grew modestly last month in the face of higher input costs and more job cuts.

Business activity in November, rose slightly for the eleventh month in a row but this gain was undermined by an economic climate that saw job cuts accelerate to its quickest pace for over a year, according to today’s Markit/CIPS UK Services Purchasing Manager’s Index.

The PMI recorded 52.1 in November, a marginal improvement on October’s 51.3. A reading above 50 indicates growth.

Rising utility bills and increased transportation costs continued to contribute to a strong rate of input price inflation. But competitive pressures to stimulate demand dampened businesses’ moves to pass price rises on to customers, and as a result output charges changed little since September.

Evidence of spare capacity was provided by faster falls in backlogs and employment. Although modest, the rate of job cuts was the quickest in 15 months. Some purchasers blamed a lack of incoming new business as a factor behind redundancies, while others sought to better match staffing and costs to business requirements.

Business confidence was slightly lower than October’s five-month peak. Hopes of an improved economic environment, the 2012 Olympics and the start of new projects were factors reported to have contributed to positive expectations. Those forecasting a decline in activity attributed their pessimism to general economic uncertainty and public spending cuts.

Chris Williamson, chief economist at Markit, said: “Companies remained concerned about the outlook, with headcounts falling at the steepest rate for over a year as a result. With the private sector cutting staff at the same time as government spending cuts reduce the public sector payroll numbers, unemployment looks set to rise above the current rate of 8.3 per cent.

“Whether or not the economy slides into recession next year depends to a large extent on whether politicians can find a workable solution to the eurozone’s crisis."

Birmingham, West Midlands
HS2 Ltd
London (Greater)
£50,800 plus up to £10,000 Recruitment Retention Allowance
House of Lords
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