Fears are growing over the UK’s crucial services sector after data yesterday revealed the weakest rise in new business for nine months in May.
Service firms, which account for some three quarters of Britain’s GDP output, also signalled they may be forced to cut jobs again amid concerns over the strength of the recovery.
Although activity levels inched up in the monthly business index published by research group Markit and the Chartered Institute of Purchasing & Supply (Cips), businesses reported that customers had grown jittery over the sustainability of the recovery and planned budget cuts.
The main activity index edged up to 55.4 from 55.3 in April but economists pointed out that last month’s output was significantly lower than in February, when the sector hit a two-and-a-half year peak. New orders registered the slowest growth since September.
Worryingly, employment dipped slightly in May as services firms struggled to overcome the double hit of rising costs and customer uncertainty. Input price inflation fell only marginally last month from April’s 19-month high.
Firms reported that they did not replace staff who left of their own volition, while some said they were even forced to make redundancies.
Whilst on the surface, the recovery of the UK services sector continued at a steady pace, a look under the bonnet reveals some worrying signs and raises concerns about the prospect of a double-dip recession.
Most alarming was the slower growth in new business which, coupled with on- going input price inflation drove a number of firms to reduce staff for the first time in three months. What’s more, some purchasing managers attributed any positive growth spurts to a rebound in activity following the disruptive volcanic ash chaos.”
It must not be forgotten that we are still in the middle of a financial crisis and contradictory figures come as no surprise but with rising unemployment coming in the third quarter service sectors such as recruitment are going to struggle as there is no foundation to demand.
Author: Chris Slay
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