Pace of economic recovery slowed in December as growth in dominant services sector slipped to six-month low

 

Growth in the dominant services sector slipped to a six-month low as the pace of economic recovery slowed in December, amid predictions that it will ease off over the year to come.

The reading of 58.8 in the closely-watched Markit/CIPS purchasing managers' index (PMI) was below expectations, though still well ahead of the 50 level that separates growth from contraction.

It was the second monthly fall in the index of the services sector - which represents three-quarters of the economy and has led the UK out of recession.

The slowdown mirrors trends in manufacturing and construction, which also lost momentum during December compared to very strong performances in previous months.

It left the average PMI across all three sectors at a five-month low of 59.5.

Yet if borne out by official data, gross domestic product (GDP) would still have grown by 1% over the fourth quarter and 1.9% over 2013 - though the contribution of retail sales and trade will also have to be taken into account.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "Overall, the purchasing managers' surveys for services, manufacturing and construction indicate that the UK economy lost some momentum in December but still expanded at a healthy clip.

"Indeed, it still looks very possible that GDP growth in the fourth quarter of 2013 could have at least matched the 0.8% quarter-on-quarter expansion achieved in the third quarter.

But he said the figures reinforced the view that growth in 2014 will ease off a little.

Alan Clarke, Scotiabank's director of fixed income strategy, said there was probably "a bit more downside to come" for services but, taken outside comparison with previous figures, the 58.8 reading was still a "stonkingly good number".

Despite the slip, CIPS said the PMI report still signalled "a historically strong rate of expansion" following growth across every month of 2013.

New work reached an all-time high in the final quarter of the year - though this slipped back in December - with confidence high and increased marketing, and the release of new products bolstering sales.

Optimism was at its highest since March 2010, with well over 50% of firms forecasting growth over the next 12 months. Employment rose for a 12th successive month.

The weakest sub-sectors were hotels and restaurants, though these still saw "decent growth", said Markit chief economist Chris Williamson. He said the services sector ended 2013 "in a buoyant mood".

"Although growth of business activity slowed, it's come down from super-strong levels and the pace of expansion remains elevated.

"More strong growth looks likely as we move into 2014. It is perhaps inevitable, however, that we may see the rate of growth slow compared with the unusually strong pace seen in recent months."

PA

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