Key services sector grows but joblessness is also up

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The Independent Online

Activity in the UK's service sector continued to expand last month but employment registered a sharp drop, according to the latest survey of purchasing managers.

The headline index in November's Markit/Chartered Institute of Purchasing & Supply (CIPS) survey rose to 52.1, up from 51.3 in October. Any figure above 50 indicates growth.

The index, which has now seen 11 straight months of expansion, was driven up by rising volumes of new work and increased marketing and advertising.

But the survey also indicated activity is being held back by weak bank lending and government spending cuts.

And new business orders were driven by new products and services rather than an rise in general demand.

There was bad news on employment too, with service jobs being shed at the quickest rate in 15 months in November. The sub-index that measures employment in the sector slipped from 49.8 in October to 48.2.

Some of the firms surveyed blamed a lack of new business for the increase in redundancies. Job losses were heaviest in hotels and restaurants.

The profit margins of service sector firms were also squeezed by rising prices. Input price inflation increased slightly in November due to elevated utility and fuel costs. But these higher costs were generally absorbed by firms without being passed on to clients and customers. Business confidence also fell over the month, down from a five-month peak in October.

"Whilst the service sector is still growing, it is doing so at a modest rate and businesses remain under strain," said David Noble, chief executive officer at CIPS. "Strong headwinds from the continued eurozone crisis combined with public sector pressures are adding to the anxiety levels amongst many businesses in the sector. With the London 2012 Olympic and Paralympic Games in sight."