UK service sector growth slowest in 19 months in December

The UK services sector lost momentum at the end of last year, providing policy-makers with a mixed bag of news on the health of the economy, analysts said following the release of a survey.

Markit/CIPS’s headline gauge of activity in the sector, which is the main motor of the British economy, fell back to a reading of 55.8 in December – its lowest reading in 19 months - from 58.6 in the month before. That was comfortably below the 58.4 expected by economists.

That came as both activity and new business rose at their weakest pace in over a year-and-a-half.

While the survey compiler highlighted the fact that growth rates remain well above their historical averages its chief economist, Chris Williamson, pointed out how “the survey data provide policymakers with a mixed bag of news on the health of the economy at the end of last year, adding further uncertainty about the outlook for interest rates.”

Backlogs of work increase

One particularly interesting point is that firms reportedly won a larger proportion of business which was large and long-term in nature. That contributed to an increase in backlogs of work. Similarly, insufficient staff numbers were reported as a factor underpinning backlog growth.

Even so, extra workers were taken on, in line with positive forecasts for company performance in 2015. Indeed, in some instances increased salaries being paid was reported, especially for new recruits. Nonetheless, their effect on total operating cost inflation was dampened by reduced fuel prices.

David Noble, group chief executive officer at the Chartered Institute of Purchasing & Supply chimed in, saying: “In summary the mix of the weak and the strong in this month’s data may be posing plenty of questions but the full answers will still be some months away.”

Lastly, the composite purchasing managers' index (PMI) for the construction, manufacturing and service sectors combined fell back to 55.2 from 57.6 in the month before (consensus: 57.4).

As of 11:40 the yield on 10-year Gilts was off by four basis points to 1.63%. In parallel, cable was to be seen slipping 0.38% to 1.5192.