UK service companies cut jobs in December at the fastest pace since comparable records began in 1996, according to a survey yesterday.
UK service companies cut jobs in December at the fastest pace since comparable records began in 1996, according to a survey yesterday which heightened fears of a sharp acceleration in the rate of overall economic contraction.
The survey, from the Chartered Institute of Purchasing and Supply, also showed the UK's dominant service sector declining at a pace only marginally adrift of a November rate which was the worst in the 12-and-a-half years of data collection.
CIPS' business activity index for services edged up from 40.1 in November to 40.2 in December but continued to signal a very sharp rate of decline, remaining way below the level of 50 which separates expansion from contraction. The fall in ser-vices activity was widespread, with financial intermediation and hotels and restaurants among the worst affected sub-sectors.
Service sector activity has, according to CIPS, now fallen for eight consecutive months.
The dire services report follows extremely weak surveys from CIPS of December activity in the UK manufacturing and construction sectors.
Economists yesterday declared that CIPS' surveys, which are watched closely by the Bank of England's Monetary Policy Committee, were consistent with a fall of about 1% in UK gross domestic product during the fourth quarter of last year. This would represent a marked acceleration from the sharp 0.6% drop in economic output during the three months to September 30.
CIPS' service sector survey does not include retail, which is having to deal with a rapid deterioration in consumer confidence and spending power.
Ross Walker, UK economist at Royal Bank of Scotland, said of CIPS' service sector survey: "The news is there is still no signs of any improvement in the predominant sector of the economy.
"We had a big fall in GDP in Q3. This suggests we are going to see an even larger fall in Q4. It could be up to a drop of 1%."
Referring to the "big drop" in service sector employment signalled by CIPS' survey, Walker added: "It corroborates a lot of the anecdotal evidence we have seen over the last couple of months of a pick-up in lay-offs.
"We would expect to continue to see an acceleration in lay-offs."
Survey respondents blamed rising spare capacity, efforts to cut costs, and bleak forecasts for activity levels over the coming year for the record pace of job-shedding. December was the eighth consecutive month in which service companies as a whole have cut staff numbers.
The fall in new work for service companies recorded in CIPS' latest survey was, as with business activity, only marginally less severe than November's record drop.
CIPS' service survey also showed the worst performance by this key sector for any calendar year since the report was launched in 1996.
Paul Smith, senior economist at financial information provider and survey sponsor Markit, said: "While the very slight improvement in the headline business activity index may be welcomed in some quarters, there is no getting away from the fact that December was another tumultuous month for the UK service sector...
"The near-term outlook for the services economy remains bleak. The VAT reduction aside, firms are now resorting to discounting strategies as part of efforts to drum up new work, but with little success so far, while expectations for future activity remain exceptionally low. This has all combined to put companies firmly in recessionary mode, cutting jobs at a rate unprecedented in 12-and-a-half years of data collection."
Roy Ayliffe, director of professional practice at CIPS, said: "The festive period did little to bolster the service sector in December Purchasing managers voiced deep concerns for the service sector as businesses and consumers slashed their spending - causing profits to tumble further and faster. Margins were squeezed by increasing input prices, largely fuelled by the weaker sterling, and (by) lower prices charged as firms battle for business in an increasingly fierce market."
David Tinsley, UK economist at Clydesdale Bank, said: "Our weighted measure of (CIPS') manufacturing and service sector (surveys) for the fourth quarter suggests to us we may see a large fall in output in Q4. With the Bank of England reporting that borrowing for capital expendi-ture is falling sharply and the CBI survey showing very weak capex (capital expenditure) intentions, we would not be surprised to see very sharp declines in business investment, alongside destocking, pulling output down by close to 1% Q4, with something similar in Q1."
