Sharp fall in jobs fuels fears for service sector

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 (with any figure above 50 indicating growth). The index, which has now registered 11 straight months of expansion, was driven up by rising volumes of new work and increased marketing and advertising.

However, the survey also indicated that 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 increase 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 services employment slipped from 49.8 in October to 48.2.

Some of those 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 of 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."

Chris Williamson, chief economist at Markit, said that although this latest survey indicates economic expansion, other surveys of purchasing managers paint a different picture.

"With manufacturing contracting at a steep pace, the weak growth of services means the economy is likely to have stagnated in the fourth quarter," he said. "Whether or not the economy slides into recession next year depends to a large extent on whether politicians can find a workable solution to the eurozone's crisis."

Purchasing managers' surveys last week showed weak growth in construction activity and the biggest fall in manufacturing since June 2009. The Organisation for Economic Co-operation and Development has warned that Britain is entering a mild recession. And last week the Office for Budget Responsibility forecast that the UK economy is set to be flat until the middle of next year.

Inequality rises faster in UK than in rest of the rich world

Income inequality has risen faster in Britain in recent decades than in any other advanced country, according to the Organisation for Economic Co-operation and Development (OECD). A new report from the Paris-based think tank shows that the share of the top 1 per cent of earners increased from 7.1 per cent in 1970 to 14.3 per cent in 2005. Although income inequality declined in 2000, it has been rising sharply through the 2008-09 recession.

The OECD also shows that the UK tax and benefit system has grown less redistributive over 40 years. In the late 1970s, the system offset more than 50 per cent of the rise in market-income inequality. Last year, tax and benefits reduced market-income inequality by just a quarter.