Service Sector Growth Weakens As Weather Impacts, Job Losses Continue

The January CIPS/Markit UK Services PMI figures, released today, show:

• The headline seasonally adjusted Business Activity Index fell to 54.5, from December’s 56.8, signalling the slowest rise in activity for five months.
• Slowdown of activity was attributed by many panellists to the weather. Latest data showed that Hotels and Restaurants suffered the steepest falls in both activity and new business.
• Growth in new business eased to slowest rate since August. Growth was strongest in Business Services.
• Employment fell for a twenty-first successive month in January as natural wastage and the non-replacement of leavers was used to trim employee numbers. However, there was also some evidence that jobs were cut in response to excess capacity as backlogs continued to fall in January, albeit at a slight pace.
• Business expectations were at their highest for four months in January with hopes of general economic improvement and planned new product launches given as supporting optimism. Potential government spending cuts were noted as a factor that may depress activity over the coming year.

Paul Smith, Senior Economist at Markit Economics said:

“The heavy snow appears to have hit services harder than manufacturing in January. Whereas manufacturers were often able to make up for lost production days, service providers – especially consumer-facing firms – simply saw fewer customers. However, the fact that services activity continued to increase despite the weather, combined with the surge in manufacturing reported earlier this week, suggests that the UK economy continued its recovery at the start of 2010. What’s more, an improvement in expectations for the year ahead and reduced job losses both point to ongoing expansion in coming months”.

The CIPS/Markit UK Services PMI covers transport & communication, financial intermediation, business services, personal services, computing & IT and hotels & restaurants.

Release: Markit Economics [PDF].

Note: The index is a “diffusion index”, it is calculated by adding together the percentage of respondents that reported an improvement plus half of the percentage that reported no change. Results will vary around the 50.0 “no-change” level. Readings above 50.0 signal an improvement, readings below 50.0 a deterioration. The greater the divergence from 50.0, the greater the rate of change anticipated by respondents.

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