–Analyst Says Composite PMI Points To 0.3% q/q Growth In Q4

LONDON (MNI) – The UK services sector saw continued but subdued
growth through November, according to the latest Markit/CIPS PMI survey.

The Markit/CIPS Business Activity Index eased to 53.0 in
November, slightly down on October’s 53.2. This marks the 19th
consecutive month that growth rather than contraction in the
sector has been recorded.

Combined with the sharp pick-up in the manufacturing PMI earlier
this week, a composite measure of the CIPS surveys still rose in
November and points to quarterly GDP growth of around 0.3%, according to
Vicky Redwood, Senior UK Economist at Capital Economics.

But the services survey showed confidence remained historically low
and a further round of job cuts has been implemented.

While input costs rose markedly, competitive pressures are
constraining pricing power.

“The UK service sector continued to expand during November,
supported by a further increase in new business. However, growth rates
were again subdued and other indicators from the survey point to
sluggish growth ahead. Backlogs of work fell further as spare capacity
persisted, while confidence remained well down compared to pre-recession
levels. With margins also under pressure following another steep
increase in input costs, staffing numbers were cut for a second
successive month”.

Comment: Paul Smith, Senior Economist at survey compilers Markit
said that the survey showed the contribution from services to the
ongoing recovery would diminish during Q4:

“With the survey’s data on backlogs and confidence pointing to
sluggish expansion in the near-term, we expect the sector to make a
reduced contribution to UK economic growth in Q4. Moreover, the sector’s
present growth profile suggests it is unlikely to generate any
meaningful job creation and help to offset expected employment cuts in
the public sector”.

This compares unfavourably with the recent buoyant signs seen in
the Markit/CIPS survey of the manufacturing sector.

“Compare this to the manufacturing sector where output is rising
markedly in line with strong new export order growth and employment is
being created at a record rate.

David Noble, Chief Executive Officer at the Chartered Institute of
Purchasing & Supply also pointed to fragilities in the sector going
forward:

“Once again, UK services growth was far from spectacular in
November. This trend may start to take a heavy toll on business
confidence as we head into the New Year.

“Profits will be squeezed for many businesses, not least due to
higher utility bills and the VAT increase and there is limited scope to
pass on any additional costs to customers. Forward looking indicators
are already showing signs of instability, with purchasing managers
reporting weak consumer demand. This is worrying as we would expect
demand to be higher during the Christmas period”.

–London newsroom 0044 207 862 7491;
email:ukeditorial@marketnews.com

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