THE UK's dominant services sector turned in an unexpectedly strong performance in December, a key survey has revealed, but confidence among firms tumbled and evidence for the fourth quarter as a whole points to economic stagnation.
Meanwhile, a separate survey from the Bank of England yesterday highlighted a view among commercial banks that "factors such as the economic outlook and tighter wholesale funding conditions were expected to impact negatively on credit availability".
This could spell further trouble for UK economic prospects, putting a further dampener on already-stagnating activity at a time when swingeing public sector spending cuts and associated job losses will almost certainly act as a significant drag on output.
The Chartered Institute of Purchasing and Supply's business activity index for services jumped from 52.1 in November to 54 in December on a seasonally-adjusted basis, to signal the fastest monthly growth in this sector since July.
Expansion was fastest in the hotels, catering, and restaurants sub-sector, likely reflecting the impact of pre-Christmas nights out. There was also strong growth in the transport, storage, and communications sub-sector. CIPS' service sector survey does not include retail activity.
CIPS' report, produced by research company Markit, showed the UK service sector last month enjoyed its sharpest monthly increase in new business since July.
But Markit chief economist Chris Williamson emphasised that the all-sector index from CIPS' surveys of services, manufacturing and construction had in the fourth quarter registered its weakest reading since the second quarter of 2009. The UK was still in deep recession in the second quarter of 2009.
Mr Williamson said the reading of 51.8 for the all-sector index in the fourth quarter, down from 52.5 in the preceding three months, was on past experience "roughly consistent with a stagnation of gross domestic product".
Vicky Redwood, chief UK economist at consultancy Capital Economics, said: "A weighted average of the three surveys over the fourth quarter as a whole points to overall GDP doing little better than stagnating.
"What's more, the surveys do not have a perfect relationship with the official data and the falls in the hard data on industrial production and services output in October suggest that a contraction is still possible. Remember, too, that the CIPS surveys do not cover the high street, where spending has been fairly soft."
CIPS' services survey, in spite of the rise in activity signalled, showed only very marginal growth in employment.
And confidence among services companies about their level of activity in 12 months' time dropped sharply in December to match the two-and-a-half-year low recorded in September.
Highlighting a weakening UK economic trend over the course of last year, Mr Williamson said: "The flat picture for the fourth quarter represents a marked deterioration in performance since the 0.6% expansion recorded by official (GDP) data in the third quarter.
"However, the third-quarter expansion was boosted by a rebound from temporary disruptions to business in the prior quarter, notably the additional public holiday due to the royal wedding, and the PMI data suggest that the underlying trend has been one of a steady weakening over much of 2011."
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereComments are closed on this article