Figures serve up new economy blow

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The restaurant sector reported a rise in new business

Growth in the powerhouse services sector slowed in February, weakening hopes that the UK economy will rebound quickly from last year’s slump.

The latest Markit/CIPS Purchasing Managers’ Index (PMI) survey – where a reading above 50 indicates growth – declined to 52.6 in February from 54.5 the previous month, when the economy bounced back from December’s weather chaos.

The pace of growth in the sector, which accounts for about 75% of GDP, was slower than the average for 2010 as the sector battles rising prices and weakened consumer confidence.

Employment levels fell for the fifth month in a row, stoking fears that the private sector will struggle to create enough jobs to offset the cuts in the public sector.

But hotels, restaurants, catering and personal services reported strong rises in new business while confidence strengthened to a nine-month peak.

The UK is expected to avoid a double-dip recession after the 0.6% contraction in GDP in the final quarter of 2010, but the disappointing results from the services sector means the economy is increasingly reliant on the stronger manufacturing and construction sectors.

David Noble, chief executive of CIPS, said: “Whilst the UK service sector wasn’t exactly a shrinking violet in February, the latest PMI data is certainly shy of what we might have hoped for.

“January’s bounce-back petered out slightly, back to below average growth performance compared to 2010. The sector remains on the sidelines as reliance on manufacturing and construction for GDP growth intensifies.”

Howard Archer, chief economist at IHS Global Insight, said the sector is being held back by muted consumer spending and to a limited degree by the cutbacks in government spending.

He said: “Given the dominant role of the services sector, the disappointing February purchasing managers survey dilutes some of the optimism over how much the economy has bounced back in the first quarter of 2011 after contracting 0.6% quarter-on-quarter in the fourth quarter of 2010. It is also an indication that the underlying state of the economy is pretty brittle as the fiscal tightening increasingly kicks in and consumers face major headwinds.”

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