Activity contracts in UK service sector

Covent Garden, London

There was a drop in activity in the UK’s services sector last month, a new survey showed today.

The purchasing managers’ index for the services sector, released today by the Chartered Institute of Purchasing & Supply (CIPS) and financial information services firm Markit, reveals that the headline index dropped to 48.9 in December, from 50.2 in November, slipping below the 50.0 mark that separates growth from contraction.

This is the first time in two years that services activity has declined and the report has renewed fears that the UK may be heading for its third recession since the start of the financial crisis in 2008.

Survey compiler Markit claims that the figures point to an overall contraction in the UK economy of approximately 0.2% in the final quarter of 2012. The UK emerged from a double-dip recession in the third quarter, when GDP grew by 1%.

Chris Williamson, chief economist at Markit, highlighted the fact that incoming new business dropped for a second successive month in December, suggesting that underlying demand remains very weak and that activity may continue to fall in the New Year.

CIPS chief executive David Noble said that confidence was unchanged on November’s 11-month low, which further signals a lack of momentum going into 2013.

The UK economy has struggled to recover from the financial crisis and continues to face weak demand in the euro zone, its biggest trading partner.

Last month the government’s Office for Budget Responsibility revised its predictions for the UK’s economic performance in 2012 and 2013, saying that it now expects the economy to contract by 0.1% in 2012 and then grow by 1.2% in 2013. This is a significant downgrade from earlier expectations published by the OBR in March, when it expected the economy to grow by 0.8% in 2012 and 2% in 2013.

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