Powerhouse UK service sector crawls back towards recovery but hurdles remain

Britain’s crucial services sector continued to struggle last month amid the cost-of-living squeeze, but almost managed to get back into neutral territory, a closely-watched survey has suggested.

The sector – over two-thirds of the economy – saw its best performance since September, and evidence showed that cost increases eased to their lowest point in 15 months. The widely-monitored S&P Global/Cips UK services purchasing managers’ index showed a reading of 49.9 for December, up from a score of 48.8 in November.

A score of 50 is considered to show that the sector is neither expanding nor contracting, anything above or below that denotes growth or decline, respectively. Economists had predicted that the measure would reach this break-even point in December, but it fell just short.

John Glen, chief economist at the Chartered Institute of Procurement and Supply (Cips), said: “With more uncertainty than ever in the UK economy, squeezed service providers remained hampered by stubbornly high costs and low customer volumes and the sector remained in contraction. With reduced output for the third month in a row, the slowest rise in the cost of doing business for 15 months was not enough to stop service providers focusing on getting good value from their supply chains without racing to the bottom on price.”

The UK services sector accounts for more than two-thirds of economic output and encompasses areas such as hotels and hospitality.

Walid Koudmani, chief market analyst at online investment platform XTB.com, noted: “Despite inflation falling, it remains very high and consumers along with investors remain wary of the volatile nature of current circumstances despite the fact that this data may provide some slight relief and hope for things to come.”