Services slump adds to fears of further shrinkage

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The Independent Online

The worst month for Britain's dominant services firms in nearly two years yesterday fuelled fears that the economy could shrink again in the final quarter of 2012.

The Chartered Institute of Purchasing & Supply's (Cips) latest snapshot of a sector which accounts for around three quarters of the UK's output came as the Chancellor's Office for Budget Responsibility fiscal watchdog delivered more disappointment on growth and borrowing.

The Cips purchasing manager's index, which covers businesses from hotels and restaurants to IT and financial services, painted a picture of a sector in virtual stagnation during November.

The index, where a score over 50 signals expansion, slowed to 50.2, barely above the no-change mark and far worse than the modest growth expected by City economists.

Cips chief executive David Noble said the sector had faced tough times with clients reluctant to open their wallets, confidence at its lowest for nearly a year and volumes of new work falling for the first time in almost two years.

"The services sector is in a state of stagnation with activity growth at its lowest for almost two years and businesses fearful of the direction of the economy... It is the absence of new business however, that will be of most concern as the industry looks to build a solid foundation for growth in the New Year," he warned.

Cips' surveys for construction and manufacturing also put both sectors in contraction last month, raising the renewed danger of a triple-dip recession as the nation suffers a post-Olympics hangover.

Forecasts for the current three months range between 0.3 per cent and minus 0.4 per cent although survey compiler Markit said: "An outcome towards the lower end of this range, or a decline of even steeper magnitude, is a distinct possibility."

Vicky Redwood, economist at Capital Economics, said an average of Markit's three surveys suggests a 0.4 per cent GDP fall this quarter.