Sluggish service sector results raise spectre of recession

Services, the UK's most robust sector, has declined for the first time in two years, according to the latest PMI data. Cue widespread doom-mongering.

by Rebecca Burn-Callander
Last Updated: 19 Aug 2013
Not the most heartening start to 2013, this. The PMI services index from Markit/CIPS for December has fallen to 48, down from 50.2 in November. Anything below 50 indicates the sector is shrinking, and given that services account for around 75% of UK GDP, this is not good.

Markit reckons that the contraction is down to a fall in new business. Businesses are still adopting a ‘head in the sand’ approach amid all the economic strife, it posits. They are not seeking out new opportunities, or investing in anything. There’s a reason that the phrase ‘closing a deal like an ostrich’ doesn’t exist…

These figures means that the UK economy probably shrank by 0.2% in the final three months of 2012, adds Markit. This is a fair bit worse than the predictions made by other forecasters. Turns out that the 1% growth generated by the UK last summer was just a blip after all. Goodbye recovery, hello triple-dip recession.

And there’s more bad news. The construction sector, espoused by the Coalition as a possible economic powerhouse for the UK, has also continued to shrink. Manufacturing has fared slightly better, but accounts for just 10% of GDP so as bright spots go, it’s more of a fading twinkle.

Crunching the composite data from the services, construction and manufacturing surveys, the UK has just given its worst quarterly economic performance for three-and-a-half years. And things aren’t exactly looking up for the coming months either. ‘The underlying trend is one of continuing uncertainty,’ says David Noble, chief executive at the Chartered Institute of Purchasing and Supply. ‘Businesses are holding back on investment, leading to falls in employment and increased levels of spare capacity. At the same time, costs are increasing and businesses are unable to pass these on because of competitive pressures.’

And a Happy New Year to you too, David.

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