Service sector shrinks for first time in two years

4 January 2013

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4 January 2013 | Adam Leach

Buyers in the UK services sector experienced a frugal end to the year as budget cuts and cost control were implemented amid a backdrop of declining activity and bleak prospects for the new year.

The Markit/CIPS UK Services Purchasing Managers’ Index (PMI) reported a figure of 48.9 for December, indicating activity had declined in comparison with November, which recorded a mild growth figure of 50.2. A figure below 50 indicates contraction. The decline was the first seen in two years, when snowfall saw services activity drop.

A slight drop in incoming new business was the main factor attributed to the contraction, leading to two consecutive months of falling new business, which has not occurred since mid-2009.

Respondents to the survey provided anecdotal evidence that over the month, purchasing budgets had been cut and cost controls were implemented to cater for the lacklustre business environment.

Chris Williamson, chief economist at Markit, said: “Bad weather is likely to have played a role in dampening service sector activity in December, but the fact that incoming new business dropped for a second successive month suggests that underlying demand remains very weak and that activity may continue to fall in the New Year.”

David Noble, CIPS CEO, said: “The service sector ended 2012 on a weak note, suffering its first contraction in two years, ensuring confidence remained at its 11-month low recorded last month and signalling a distinct lack of momentum for 2013.”

Backlogs of work also declined for the third successive month, output charges were relatively unchanged and input price inflation increased. There were reports that food and utility price rises were responsible for the growth.

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