• Text size      
  • Send this article to a friend
  • Print this article

Services sector growth weakest for two years

GROWTH in the UK's key services sector slowed to a crawl in October, according to a key survey which rang further alarm bells over the outlook for the economy amid swingeing public spending cuts.

The Chartered Institute of Purchasing and Supply's business activity index for UK services tumbled from 52.2 in September to 50.6 in October on a seasonally-adjusted basis.

The October reading signalled that this dominant sector of the economy grew last month at its weakest pace since December 2010, and was only marginally greater than the level of 50 which is calculated by CIPS to separate expansion from contraction.

CIPS's survey also showed employment in UK services fell for a second consecutive month in October, raising worries over the labour market outlook.

The weak services survey followed a report from CIPS last week which showed that the UK manufacturing sector's troubles deepened in October as output and new orders tumbled and employee lay-offs continued.

A separate survey from CIPS last week showed the UK construction sector shed staff in October at the fastest pace for 14 months, as housebuilding and commercial property construction activity continued to fall but civil engineering output grew.

Martin Beck, UK economist at consultancy Capital Economics, said: "Although early days, October's survey results [from CIPS] are consistent with our view that GDP [gross domestic product] will contract in the fourth quarter, as the temporary factors that boosted GDP in Q3 unwind."

UK GDP jumped by 1% quarter-on-quarter in the three months to September, according to figures last month from the Office for National Statistics.

However, this rise followed three consecutive quarters of contraction. And part of the bounce in GDP in the third quarter reflected the downward impact of the extra public holiday for the Queen's Diamond Jubilee on economic activity in the three months to June. Third-quarter GDP also benefited from activity associated with the London 2012 Olympics.

Howard Archer, chief UK economist at consultancy IHS Global Insight, said: "The October services purchasing managers' survey is disappointing, and fuels concern that the economy is struggling to develop even modest underlying growth despite the better-than-expected rebound in GDP in the third quarter.

"Meanwhile, a second successive, albeit modest, drop in services employment in October is a warning sign that there is no guarantee that the recent remarkable resilience of the labour market can be sustained."

Andrew Harker, economist at CIPS survey compiler and financial information company Markit, said: "The latest UK services PMI data provide a warning to those who saw the strong growth in GDP during Q3 as symbolising the start of a strong and speedy economic recovery."

He added: "With activity rising at the weakest pace in close to two years, the broadly-stagnant trend seen in official data over the year to date looks to have continued at the start of the fourth quarter."

CIPS' services employment index edged up from 48.3 in September to 49.2 in October, but remained below 50 and thus signalled a continuing decline in the workforce, albeit at a slower pace.

According to survey respondents, workforce restructuring and the non-replacement of departing staff were behind the reduction in service sector employment in October.

CIPS' survey of services does not include the retail sector.

Contextual targeting label: 
Careers and Jobs

Commenting & Moderation

We moderate all comments on HeraldScotland on either a pre-moderated or post-moderated basis.
If you're a relatively new user then your comments will be reviewed before publication and if we know you well and trust you then your comments will be subject to moderation only if other users or the moderators believe you've broken the rules

Moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours. Please be patient if your posts are not approved instantly.

124109