uk services shrink for first time in two years

The UK’s service sector has contracted for the first time in two years, adding to concerns that the economy is heading into triple-dip recession, a closely watched survey shows.

uk services shrink for first time in two years


The Markit/CIPS UK Services purchasing managers’ index (PMI) fell to 48.69 points in December, down from the 50.2 recorded in the previous month. 

A reading below 50 points shows that output shrank over the month and December was the first time this has been seen since December 2010.

Chris Williamson, chief economist at Markit, said: “The first fall in service sector activity for two years raises the likelihood that the UK economy is sliding back into recession.

“The services PMI follows an equally disappointing construction survey for December, leaving manufacturing – which accounts for just 10% of the economy – as the only bright spot.”

The UK economy spent much of 2012 in recession although GDP increased  by 0.9% in the third quarter, according to the latest estimate. However, Williamson suggested that the latest batch of PMIs warn that GDP may have dropped by 0.2% in the fourth quarter, which could herald the start of an unprecedented triple-dip recession.

Capital Economics chief UK economist Vicky Redwood said: “December’s CIPS/Markit report on services broke the run of good news seen so far this new year and suggested that the economy still looks likely to have contracted in the final quarter of 2012."

Howard Archer, chief UK and European economist at IHS Global Insight, added: “This is undeniably a very disappointing survey that fuels fears that the economy suffered a renewed dip in GDP in the fourth quarter.

“Given the dominant role of the services sector and the fact that it has recently been the healthiest part of the UK economy on the output side, the reported fall in activity in December is a significant blow for growth hopes.”



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