Little festive cheer for service sector

Published on Tuesday 6 January 2009 20:17

THE festive season has done little to boost the UK's crucial services industry, which experienced its worst-ever year in 2008, a new report has revealed.

The Chartered Institute of Purchasing & Supply (Cips) reported a further month of contraction in the sector in December and a record rate of job losses following further sharp falls in output and turnover.

Services accounts for about three-quarters of the economy and spans everything from financial services through to transport, hotels and restaurants.

The survey's main business activity index registered 40.2 in December – marginally better than the reading of 40.1 for November, which was the poorest figure since the survey began in 1996. A reading below 50 indicates contraction.

The findings came as three of Britain's biggest retailers reported better-than-feared Christmas sales figures but warned that rising unemployment and plunging house prices would blight trading for months to come.

Next and Debenhams both reported drops in sales – although at the shallower end of analysts' expectations – while New Look revealed a 2.8 per cent rise in like-for-like sales for the 14 weeks to 3 January, although it forecast "an increasingly difficult market" in 2009.

Rising spare capacity and efforts to cut costs in the bleak climate led to a record rate of job cutting last month, the study found.

Cips director Roy Ayliffe said: "The festive period did little to bolster the service sector, with 2008 witnessing the poorest annual performance since data was first collected over 12 years ago."

He added: "Understandably, companies reduced workforces further to reduce costs and brace themselves against what is expected to be a gruelling year."

David Tinsley, UK economist at Clydesdale bank, added: "UK service-sector activity slowed more than expected in December, according to the latest PMI measure."

Other experts said the data took some pressure off the Bank of England's monetary policy committee, which is due to make its monthly decision on interest rates tomorrow.

Vicky Redwood, an economist at Capital Economics, said: "The stabilisation in December's Cips report on services, on the face of it, alleviates some of the pressure on the monetary policy committee to cut interest rates aggressively again this Thursday.

"But with the survey still pointing to a sharp contraction in the economy, we continue to think interest rates are heading for zero or thereabouts."