Service sector buoys economy

THE service sector enjoyed the fastest growth in new work levels for five months in December.

Companies taking part in the services purchasing managers index reported higher inquiry levels helped by increased marketing and promotional work.

But firms continued to see margins squeezed as input costs rose steeply but output charges failed to move.

David Noble, chief executive at the Chartered Institute of Purchasing and Supply, said: “December capped a year of reasonable growth for the UK service sector but significant risks still lurk under the surface, not least the outcome of on-going efforts to shore up Eurozone economies. Companies exposed to the poorer performing manufacturing and construction industries in particular will need to watch out for the impact of these dangers.

“Selecting a winning pricing strategy will be the name of the game for many in the coming months, as the majority continue to grapple with higher cost inflation. Many businesses are already sacrificing profits and working harder to get the edge over their competitors. Some purchasing managers reported suppliers increasing prices and caution among customers – adding to the squeeze.”

The pressures faced by the sector saw the index measure confidence matching the two-and-a-half year low recorded in September.

Chris Williamson, chief economist at survey compilers Markit, said: “The December survey rounds off a reasonable fourth quarter for the service sector, which is likely to again provide the main stimulus to overall economic growth. Services are likely to have expanded by around 0.3%-0.4% in the final quarter, down from 0.7% in the third quarter but offsetting a renewed downturn in manufacturing and sluggish growth of construction to help the UK avoid a slide back into recession, at least for now.

“Looking ahead, however, companies grew increasingly worried about the coming year, suggesting that the upturn may prove short-lived as we move into 2012. Expectations of business growth slipped to the joint-weakest since March 2009, with firms anxious about the impact of the Eurozone crisis and domestic austerity measures.

“Uncertainty remains unusually high, and companies look to be hunkering down for a tough year in 2012. However, the upturn in services activity in December provides some encouraging news that the UK economy is showing some resilience among the many headwinds that it is currently facing.”