UK services sector downturn eases slightly in December

January 05, 2023 at 10:30 am

(Alliance News) - The UK service sector remained inside contraction territory in December, according to the latest data from S&P Global on Thursday.

The S&P Global CIPS UK services purchasing managers' index stood at 49.9 points in December, improved from a reading of 48.8 in November.

Though remaining below the 50.0 no-change mark for a third month in a row, December's reading was the best since September and indicated a near-stabilisation of activity.

The print came below market expectations, as cited by FXStreet, which expected the index to hit 50 points.

Companies were more optimistic than in November and notably more so than after September's 'mini-budget', though sentiment nonetheless remained downbeat overall in December.

S&P Global explained that cost pressures showed signs of weakening during the month, with inflation rates down for both operating expenses and charges. Price pressures, however, remain elevated.

Firms signalled "little option" but to pass on increased costs wherever possible, although, in the face of strong competition, S&P Global noted that firms were reluctant to raise charges too strongly.

"UK service providers ended the year with another downturn in new orders as strong inflationary pressures and worries about the economics outlook sapped demand," commented Tim Moore, economics director at S&P Global Market Intelligence.

John Glen, chief economist at the Chartered Institute of Procurement & Supply said that the shrinkage in the sector has started to impact on job creation levels, which have stalled for the first time in almost two years.

"With another drop in orders, especially from domestic customers, businesses were cautious about building more operating capacity, which in turn will affect jobseekers looking for the next pay rise to manage cost of living rises as the country braces itself for another recession," Glen explained.

The UK private sector remained in contraction territory for the fifth successive month in December, but improved slightly against the previous month. The index posted 49.0 points, up from 48.2 in November.

The S&P Global services PMI is complied from responses sent to around 650 service sector companies. The data were collected between December 6 and 21.

By Heather Rydings, Alliance News senior economics reporter

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