Service sector PMI hints at future recession in UK

Thursday, 03 November 2011 10:38

The vital UK services sector that accounts for around 65 per cent of activity in the UK economy showed a tenth month of successive growth, according to the latest Markit/CIPS purchasing managers index for October.

The index came in at 51.3, down from 52.9 in September, indicating that the rate of growth has slowed. This means that actual activity and new business is growing at low levels. A PMI reading of above 50 indicates growth in the sector.

Many firms that had won new business said it had been hard to win contracts as most companies are unwilling to commit to projects at a time of such economic uncertainty.

The survey revealed that companies have started to use discounting practices for the first time in more than a year to try and establish new business. Output charges have also dropped in an attempt to win new business and companies remain cautious about taking on new staff as employment levels fell very slightly.

Chris Williamson, Chief Economist at survey compilers Markit said: “Another rather disappointing survey adds to fears that the UK recovery continued to lose momentum at the start of the fourth quarter.

“Growth in the vast service sector, which accounts for almost two-thirds of economic activity in the UK, slowed to a worryingly lacklustre pace in October. The sector made a strong contribution to economic growth in the third quarter, but this looks set to wane in the final quarter of the year.”

However, the survey did reveal that optimism levels for the sector had improved to their best levels since May. Input price inflation remained at a steady level, and is now at its lowest point for just under a year.

Howard Archer, Chief UK & European Economist for IHS Global Insight said: “While the services purchasing managers’ survey did not deliver a knock-out blow to fourth quarter growth hopes, the economy is clearly on the ropes and recession is a serious threat.”

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