Service sector growth slows

| November 5, 2012
Service sector growth slows

Optimism over the economy has been hit by significantly slower growth in the UK’s largest sector in October.

At 50.6 on the Markit/CIPS Purchasing Managers’ Index (PMI) growth in the dominant service sector fell to its weakest level for nearly two year.

Analysts had expected it to fall to 52.0 from 52.2 in September, with figures above 50 representing growth.

The decline was caused by a fall in new business and also a fall in employment for the second consecutive month.

The CIPS/Markit PMI for the manufacturing sector also revealed a worsening of economic conditions in October, with companies gaining fewer order as well as struggling with a faster increase in costs.

Contraction increased to 47.5 from a revised figure of 48.1 in September, significantly below analysts’ forecasts of 48.0.

Andrew Harker, economist at Markit, said: “The broadly stagnant trend seen in official data over the year to date looks to have continued at the start of the fourth quarter.

“The expectation among firms is for activity to improve over the coming year, but the road to full economic recovery still looks to be a long one,” he added.

The figures put a dampener on the news that the economy grew by 1 percent from July to September and indicates that underlying economic conditions remain difficult.

On a more optimistic note, the Manufacturing Advisory Service (MAS) Barometer has revealed that the majority of small and medium sized businesses in the UK plan to expand in the next six months.

MAS, which is backed by the government, also revealed that 41 per cent of SMEs plan to invest in plant and machinery.

However only 45 per cent of the 600 companies interview by MAS for its monthly report said that sales had increased in the last six months.

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