Service sector beats weather to grow

5 February 2013

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5 February 2013 | Adam Leach

Activity in the UK service sector grew in January as strong demand and new business wins overpowered the negative impact of the bad weather.

The Markit CIPS UK Services Purchasing Managers’ Index for January reported a figure of 51.5 – where a figure above 50 indicates a growth - up from December’s decline of 48.9. Although growth was modest, the increase in activity was the strongest since September 2012 and overcame the impact of heavy snow across the UK, which disrupted activity.

The rise was attributed to successful marketing and sales drives, backed by a rise in business confidence across the sector. Service providers expect business activity to continue to strengthen over the next 12 months, though this was slightly tempered by worries over reduced public spending.

Employment in the sector also rose, seeing the highest rise in payroll numbers for six months as companies recruited to deal with current workloads. Backlogs of work decreased for the fourth successive month. Input price inflation accelerated to reach a nine-month high and prompted service providers to increase their output charges to the greatest degree in more than a year-and-a-half.

Chris Williamson, chief economist at Markit, said: “A huge sigh of relief accompanies these numbers, as a return to growth of the service sector in January greatly reduces the likelihood of the UK falling back into a ‘triple-dip’ recession. Companies reported the strongest rise in services activity for four months building on the promising news from manufacturers last week, where output was reported to have grown for at the fastest rate for 16 months in January.”

David Noble, CEO at CIPS, said: “Better performance and an improvement in underlying economic conditions have fuelled a new-found confidence, encouraging businesses to increase prices to their greatest degree for over a year-and-a-half. Employment also increased at its fastest rate for six months, owing to an upturn in new business, which grew for the first time in three months.”

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