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The UK’s service sector has contracted for the first time since December 2010.
Research conducted by the Chartered Institute of Purchasing and Supply, CIPS, and financial information supplier Markit concludes that the UK’s Purchasing Managers’ Index, PMI, figure fell from 50.2 in November to 48.9 in December in 2012. Any figure under 50.0 signifies negative growth.
Commenting on the figures Chris Williamson, chief economist at Markit, said that “the first fall in service sector activity for two years raises the likelihood that the UK economy is sliding back into recession” and underlying demand “remains very weak and that activity may continue to fall in the new year”.
CIPS’ research also reports that confidence amongst purchasing managers is at an 11-month low. There had been hope that the UK economy was recovering following a 1% GDP rise in the third quarter of 2012.
Whilst the UK’s service sector registered a contraction it performed better than the Eurozone economic bloc which shrank to 47.8. China’s service sector grew to a four month high of 56.1 during the same period.
News of the fall in service activity comes soon after PMI figures showed that the UK economy as a whole contracted in December to 49.9, with full results on the final quarter of 2012 due on January 25th.
The service sector is the largest component of the UK economy and accounts for more the 75% of national GDP. December’s service sector PMI figures have raised further concern that the UK economy is heading back into what would be the third period of recession in recent years.
A third recession would add to pressure on UK Prime Minister David Cameron to abandon’s his government’s austerity policy to restore the nation’s finances. The opposition Labour party has called for a government driven plan for jobs and growth and currently have a ten point lead over Cameron’s Conservative party in national opinion polls.
Recent polling though shows that David Cameron and his Chancellor George Osborne are ahead of Labour leader Ed Miliband and Shadow Chancellor Ed Balls, who were central figures in the previous Labour government of Gordon Brown at the time of the sovereign debt crisis between 2007-10, on the issue of who the British public trust to manage the economy.
In his New Year message Mr Cameron argued that the UK was “heading in the right direction” and that the country “can look to the future with realism and optimism”.
