Shrinking services sector could push UK back into recession

Accounting for around 75% of total output, a decline in the services sector could spell disaster for the UK economy.

And following the release of disappointing construction figures in the first week of January 2013, experts were forced to declare the fall a clear sign that the struggling economy is shifting into reverse gear.

A reading below 50 in the Markit/CIPS purchasing managers’ index (PMI) survey indicates contraction as opposed to growth.

The reading stood at 50.2 in November, but dropped to 48.9 in December, marking a shrink in the services sector for the first time in two years.

Chris Williamson, chief economist at Markit, said the disappointing news “raises the likelihood that the UK economy is sliding back into recession”.

Restrictive budgets were blamed for a decline in new work in December, while the relentless rain also played a leading role in the overall contraction in the services sector.

The uncongenial weather affected construction firms particularly badly, with activity in the sector dropping at its steepest rate for six months, according to the PMI survey.

Economists at Markit say that the during the final three months of 2012, Britain suffered its worst performance across the services, manufacturing and construction sectors for more than three years, and was responsible for a 0.2% contraction in GDP.

To be officially declared back in recession, the UK would need to witness two consecutive quarters of reduced output.

“Bad weather is likely to have played a role in dampening service sector activity in December, but the fact that incoming new business dropped for a second successive month suggests that underlying demand remains very weak and that activity may continue to fall in the as the year progresses,” he said.

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