Service sector growth slumps

6 January 2011

6 January 2011 | Lindsay Clark

Growth in the services sector fell more than three points, the latest purchasing managers’ index (PMI) has found.

The Markit/CIPS UK Services PMI shows activity in the sector during December 2010 fell slightly at 49.7 on the index, where 50 indicates no change. The PMI registered growth at 53 a month earlier.

While the sector as a whole was contracting slightly, buyers were faced with input price inflation accelerating at its strongest rate since September 2008.

Chris Williamson, chief economist at Markit, said: “Bad weather undoubtedly hit service sector business in December, but there are also clear signs that domestic demand has weakened as households and business continued to rein in their spending.”

CIPS chief executive David Noble said: “It was a gloomy end to the year in the UK services sector with reports of reduced activity, falls in work backlogs, and less new business. Meanwhile, profits continue to be squeezed as input price inflation accelerated at its steepest rate in over two years. Fiscal tightening will continue to be a big theme in the coming year, particularly for companies reliant on the domestic market such as hotels, caterers and restaurants which also suffered the most in the winter chill.”

However, it was encouraging to see that business confidence continued to improve slowly with the promise of stronger economic recovery, Noble said. “We must hope that there will be spill over from the booming manufacturing sector which might ease some of our worries."

 

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