News: Triple-dip recession dangers rise

Wed, 09 Jan 13

The UK's service sector showed disappointing results for December, according to the latest figures from Markit and the Chartered Institute of Purchasing and Supply (CIPS).

The headline Purchasing Managers' Index (PMIs) for the sector showed the first monthly decline in activity since December 2010, when heavy snowfall contributed to falling sales. As the service sector makes up roughly three quarters of the UK economy, a contraction in the sector is bad news for economic growth.

This reduction in output was largely due to a second consecutive decline for incoming new business; firms report that their clients are reluctant to commit to spending amid ongoing economic uncertainty. Indeed, the PMI for future business expectations remained at an 11-month low, highlighting weak confidence levels.

However, mitigating the service sector decline to some extent, the manufacturing sector gave more positive news for December. The headline PMI for the sector rose to indicate an output expansion for the first time in nine months, driven by the volume of new orders rising at the quickest rate since March 2011. Despite this, there are signs that UK manufacturers are struggling to capture overseas demand, as new export orders have now been falling for a full year. An export-led manufacturing recovery still looks tricky to achieve.

Employment prospects in the UK's private sector remain tough, as both the manufacturing and service sectors reported no net increase in job numbers in December. With public sector job cuts continuing, upward pressure on unemployment is likely in 2013.

Overall, the latest PMI results illustrate the difficult conditions that UK businesses continue to face. With contractions posted by manufacturers in October and November, alongside flat or falling output for service sector firms across Q4, it looks increasingly likely that the UK economy will show a contraction in the final quarter of 2012 when official figures are released later this month.

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