Sector provides crumbs of comfort

The Markit/CIPS Purchasing Managers’ Index (PMI) for the services sector showed activity rose to 52.1 in November from 51.3 the prior month.

A reading above 50 represents growth.

Markit said the growth reflected rising volumes of work and increased marketing in the services sector, which spans industries ranging from hotels and shops to law firms and estate agencies.

The activity index was below September’s reading of 52.9 and also showed employers shed jobs at the fastest pace in more than a year. The survey showed new business in the dominant services sector increased at the slowest rate so far this year.

“The modest pick-up in activity in November indicated by the purchasing managers’ survey provides a limited boost to hopes that the economy can keep growing in the fourth quarter, if only marginally,” said Howard Archer, chief UK and European economist at IHS Global Insight.

“Scratch beneath the surface of the survey and there are worrying signs that services activity will slow in the near term at least as new business growth moderated to an 11-month low in November, outstanding business contracted appreciably, business expectations softened and employment in the sector was cut at the fastest rate for 14 months.

“It does little to ease concerns that the economy could well contract in the early months of 2012.”

Services employers reported a balance of job cuts for the fourth time in five months in November, with some blaming redundancies on a lack of new business and the need to trim staffing to meet demand.

The survey added input price inflation ticked up in November to remain at a record high, with utility bills and transport costs increasing.

The Bank of England’s Monetary Policy Committee meets this week to decide on interest rates, but despite the bleak outlook analysts do not expect the central bank to pull the trigger on fresh stimulus for the economy through quantitative easing (QE), or gilt purchases.

Britain’s economy is likely to barely grow in the final three months of 2011, after PMI surveys last week showed sluggish construction activity and the biggest fall in manufacturing since June 2009.

A separate survey from the manufacturing body the EEF yesterday showed British manufacturing output grew at its weakest pace in nearly two years in the fourth quarter of the year. The EEF also cuts its 2012 growth forecast for the sector to 0.9 per cent from 2.2 per cent in September, blaming the tough global economy.

“There’s a significant risk that the UK will fall into a recession in the first half of next year, so today’s survey only provides limited reassurance on the economy,” said Philip Shaw, economist at Investec. “Further QE seems an odds-on possibility to us, but not this week.”

The BoE has so far pumped £275bn into the economy through asset purchases, which aim to increase the supply of money. A £75bn round of QE started in October and Dr Archer expects another £100bn of money printing in 2012 in two tranches.

Nida Ali, economic adviser to the Ernst & Young ITEM Club, said: “With credit conditions remaining tight and the public sector spending cuts, the wider economy is very unsupportive and the sector is likely to struggle in the coming months.

“These results coupled with the dismal outturn for PMI manufacturing suggest that GDP (gross domestic product) in the fourth quarter will remain flat. The longer the crisis in the Eurozone remains unresolved, the higher the probability of the UK slipping back into a full-blown recession.”

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