Services sector shows output drop


The services sector has contracted at its fastest pace for six months - a possible knock-on effect of Chancellor George Osborne's spending cuts

The UK’s powerhouse services sector contracted at its fastest pace for six months in October, official figures revealed.

Services output, which accounts for about three quarters of the economy, fell by 0.4% in October, the first fall since July and the sharpest since April, the Office for National Statistics (ONS) said.

Within the sector, the Government and other services category accounted for half the drop, reflecting the start of what is expected to be a prolonged austerity campaign.

Chancellor George Osborne announced his £81 billion package of spending cuts in mid-October, which included hundreds of thousands of public sector job losses.

Howard Archer, chief UK and European economist at IHS Global Insight, said the figures were worrying for the overall economic performance in the UK at the start of the fourth and final quarter of the year.

But he added: “It needs to be borne in mind that the services data tends to be highly volatile from month to month and subject to major revisions.”

Mr Archer added: “However, it is clear that the services sector is already being affected to a limited degree by the cutbacks in government spending.”

The ONS said comparing the three months to October with the previous three months, services output actually rose 0.6%. The services index in October was also up 1.9% year-on-year.

Within these figures, hotels and restaurants and transport, storage and communication all saw declines in October. Recent industry surveys have also shown a slowdown in the services sector.

The latest Markit/CIPS Purchasing Managers’ Index (PMI) survey – where a reading above 50 indicates growth – showed the services sector registered a slight decline from 53.2 in October to 53 in November. Retailers have been particularly concerned in recent weeks as freezing temperatures and heavy snowfall have hampered trade.

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