Surprise slowdown in service sector activity

(SHARECAST) – Activity in Britain’s largest sector, services, contracted in December against expectations, suggesting that overall economic growth slowed down significantly in the fourth quarter.

The Markit/Chartered Institute of Purchasing & Supply (CIPS) Purchasing Managers’ Index (PMI) for the sector, which includes activities as diverse as finance and catering, fell to 49.7 during the month from 53 in November. Analysts had been expecting it to hold steady. A reading below 50 indicates contraction.

Construction activity also contracted during the month, it was revealed by Markit and CIPS yesterday, though figures from the manufacturing sector have been strong. Manufacturing activity in the UK grew at its fastest pace since 1994 in December, with the weak pound boosting exports.

“A very disappointing end to the year in the service sector matches a similar deterioration in the construction sector,” said Markit chief economist Chris Williamson.

“UK economic growth is completely reliant upon export sales while domestic demand has wilted.”

Markit now estimates that the UK’s GDP grew by 0.4 percent in the fourth quarter, against 0.7 percent for the third.

Extreme winter weather conditions were partly responsible for the poor performances of construction and services in December. Several retailers, including Mothercare and Clinton Cards, have reported that the snow has been keeping shoppers away, while the cinema operator Cineworld said its December performance was hit by the weather.