Setback for UK as snow puts freeze on services recovery

Bad news from the UK service sector compounds some grim reading for the Government this morning.

Last Updated: 31 Aug 2010

Recovery? What recovery? Growth in the UK’s dominant services sector was much lower than expected in January, thanks partly to the chaos caused by all this tediously bad weather we’ve been having. Positive figures from the manufacturing sector (showing the fastest growth in 15 years) had fuelled a bit of optimism earlier this week; but after today’s news, the possibility of the dreaded ‘double-dip’ has reared its ugly head again. Meanwhile two leading think-tanks have criticised the Government’s approach to cutting the deficit, and warned that its figures are too optimistic (fancy that). Not a good morning for the Treasury, in short…

The Chartered Institute of Purchasing & Supply’s monthly Purchasing Managers’ Index recorded a figure of 54.5 in January, down from 56.8 in December and much lower than the 56.5 the City was expecting. CIPS boss David Noble said the sector (which accounts for about three-quarters of GDP these days, lest we forget) was hit much harder by the snow than manufacturing or construction, which meant less growth and fewer new business wins. ‘This may be a temporary blip rather than signs of a double-dip recession, but we can't dismiss the possibility,’ was his cheery conclusion.

If that wasn’t bad enough, the Government also came under fire from two respected think-tanks, the Institute for Fiscal Studies and National Institute of Economic and Social Research (too many Institutes today). The IFS said the Government needs to be more ambitious in its deficit-cutting, finding an extra £13bn of cuts by 2015, and suggested that UK growth would be more like 2% per annum rather than the 3% predicted by Treasury. The NIESR argued along similar lines, adding that borrowing would be much higher than official forecasts, and predicting that unemployment would keep climbing above the 3m mark next year. Not what Darling and co will have wanted to hear.

Still, at least Shadow Chancellor George Osborne’s latest eight-point plan for the UK economy hasn’t gone down universally well; although it got some heavyweight business backing (from the likes of GSK’s Andrew Witty and Autonomy’s Mike Lynch, fresh from another set of bumper results today), the Tory plan has been criticised for not containing any additional info about where all these supposed cuts are going to come from. And there was better news from elsewhere in the economy: Nationwide reported that its consumer confidence index rose 3 points in January, meaning it’s now twice as high as this time last year – and Tesco boss Sir Terry Leahy suggested the recession was over as far as shoppers were concerned.

The question now is: was the recovery just postponed due to bad weather? Or did the snow hide a deeper malaise?

In today's bulletin:

Ofgem: Energy industry needs more public money
Setback for UK as snow puts freeze on services recovery
Orange and T-Mobile tie-up to face OFT scrutiny?
Imperial Tobacco celebrates fag end of recession
Crash Course: Seven ways to manage poor performance

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