UK Services Sector Expands At the Slowest Pace in Almost Two Years

on Nov 5, 2012

The Markit/CIPS UK Services PMI report released on 5 November shows that activity in the sector grew at its slowest pace in almost two years in October.

The headline seasonally adjusted Business Activity Index was estimated at 50.6 – above the 50 mark which separates contraction from growth but below September’s figure of 52.2. The rate of growth was the slowest in the current 22-month period of rising activity.
Survey respondents who indicated an increase in business activity linked it to signs of improving underlying client confidence and demand. Other panellists said these improvements are only tentative. New order growth was significantly weak and left outstanding business for the next month depleted, following a marginal increase in the previous month.

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“Whilst the services sector can point to continued growth, it is at its weakest in just under two years, prolonging the sense of economic stasis which currently grips the industry. There are pockets of positivity; reports of growth in export markets are a welcome reprieve for a sector low on confidence and new business remains solid if not spectacular.” commented David Noble, chief executive officer at the Chartered Institute of Purchasing & Supply.

In October service providers reduced employment for the second straight month but the job cuts rate was less compared to September’s. Non-replacement of departing staff and workforce restructuring were the main drivers in employment contraction. “Employment has continued to be the victim of this less than stellar performance, with firms attributing job losses to workforce restructuring and businesses deciding not to replace leaving staff.” said Mr Noble in the PMI report.

An increase in the national minimum wage contributed to higher average staff costs, while food, energy and fuel prices also increased. Due to pressure from clients for discounts and rising competition, companies were able to pass only a fraction of the higher costs on to their customers.
Businesses retained their positive outlook as most believe the sector will pick up in the near future. Approximately 42 percent of those surveyed forecast activity to be higher in a year’s time.

!m[Despite Slowdown in Manufacturing and Services, UK’s Growth Rate Forecast to be Highest In The Eurozone](/uploads/story/721/thumbs/pic1_inline.png)The services survey covers transport, financial intermediation, business services, personal services, storage and communication, computing and IT, and hotels and restaurants, but excludes the retail sector.
Last week a PMI construction report showed the British construction sector expanded in October, but new work and employment shrank and builders remained cautious about future business.
**UK Growth**
According to the Centre for Economics and Business Research (CEBR) there will only be marginal growth in the Eurozone next year due to the European recession. In contract, the GDP in the UK is forecast at around 0.8 percent in 2013 and 1.4 percent in 2014, levels higher than for any other
Eurozone country.
“Even assuming that the problems of the euro do not cause an economic melt-down before the German elections next year, we are looking at a very weak economic outlook in Europe for the next two years” said Tim Ohlenburg, senior economist at CEBR.
The think-tank hasn’t ruled out a break-up of the Eurozone and warns this would be disastrous for the economic recovery in the region. According to the research the only other country to see growth besides the UK will be Germany with forecasts of 0.5 percent this year and 1.2 percent the following year.


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