Recession fears as services sector dip hits economy

 

Britain's economy is feared to have plunged back into the red after figures suggested the powerhouse services sector shrank last month for the first time in two years.

The Markit/CIPS purchasing managers' index (PMI) survey showed a reading of 48.9 in December, down from 50.2 in November and below the 50 mark separating growth from contraction.

The result marked the first dip in the services sector since a snow-related decline in December 2010 and comes after disappointing construction figures yesterday.

Experts said the decline for the services sector, which makes up around 75 per cent of total output, gives a clear signal that the economy went back into reverse in the final quarter of 2012.

Markit economists said the surveys across the services, manufacturing and construction sectors suggest Britain suffered its worst performance in the final three months of 2012 for more than three years, pointing to a 0.2 per cent contraction in GDP.

This would come as a marked reversal of the 0.9 per cent hike in the third quarter.

Service sector firms reported a slide in new work in December amid budget constraints and a lack of confidence, which was the second back-to-back decrease in new work since mid 2009.

Bad weather was also thought to have been a factor behind the overall contraction in the services sector as Britain was hit by persistent rain.

Construction firms were likewise badly impacted by last month's heavy rainfall, with the PMI survey showing activity in the sector falling at its fastest rate for six months, dragged lower by a poor performance in the housebuilding sector.

Manufacturing was the only bright spot last month with activity surging to a 15-month high in December, according to surveys, but the sector only accounts for 10 per cent of the economy.

Chris Williamson, chief economist at Markit, said the service sector blow "raises the likelihood that the UK economy is sliding back into recession".

The UK would have to suffer two consecutive quarters in a row of declining output to be officially declared back in recession.

But Mr Williamson said the outlook for the first quarter of 2013 is also gloomy.

"Bad weather is likely to have played a role in dampening service sector activity in December, but the fact that incoming new business dropped for a second successive month suggests that underlying demand remains very weak and that activity may continue to fall in the new year," he said.

Vicky Redwood, at Capital Economics, is pencilling in a 0.4 per cent fall in gross domestic product (GDP) in the fourth quarter.

IHS Global Insight chief UK and European economist Howard Archer is forecasting flat GDP, but said the result will depend on how much consumers spent in December.

Today's survey does not cover the retail sector, but there is little confidence that consumer spending over Christmas was enough to offset woes in the services and construction sectors, given cost pressures on UK households.

The first official estimate of fourth quarter GDP will be released on January 25, although consumer spending figures will not be included until the second estimate.

PA

Start your day with The Independent, sign up for daily news emails
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine
Letterman's final Late Show: Laughter, but no tears, as David takes his bow after 33 years

Laughter, but no tears, as Letterman takes his bow after 33 years

Veteran talkshow host steps down to plaudits from four presidents
Ivor Novello Awards 2015: Hozier wins with anti-Catholic song 'Take Me To Church' as John Whittingdale leads praise for Black Sabbath

Hozier's 'blasphemous' song takes Novello award

Singer joins Ed Sheeran and Clean Bandit in celebration of the best in British and Irish music
Tequila gold rush: The spirit has gone from a cheap shot to a multi-billion pound product

Join the tequila gold rush

The spirit has gone from a cheap shot to a multi-billion pound product
12 best statement wallpapers

12 best statement wallpapers

Make an impact and transform a room with a conversation-starting pattern
Paul Scholes column: Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?

Paul Scholes column

Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?
Season's finale brings the end of an era for top coaches and players across the continent

The end of an era across the continent

It's time to say farewell to Klopp, Clement, Casillas and Xavi this weekend as they move on to pastures new, reports Pete Jenson
Bin Laden documents released: Papers reveal his obsession with attacking the US and how his failure to keep up with modern jihad led to Isis

'Focus on killing American people'

Released Bin Laden documents reveal obsession with attacking United States
Life hacks: The innovations of volunteers and medical workers are helping Medécins Sans Frontières save people around the world

Medécins Sans Frontières's life hacks

The innovations of volunteers and medical workers around the world are helping the charity save people
Ireland's same-sex marriage vote: As date looms, the Irish ask - how would God vote?

Same-sex marriage

As date looms, the Irish ask - how would God vote?
The underworld is going freelance: Why The Godfather's Mafia model is no longer viable

The Mafia is going freelance

Why the underworld model depicted in The Godfather is no longer viable