Snow hits service sector growth

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Growth in the UK services sector stalled at the beginning of 2010 as a result of snow-related disruptions which undermined activity and new business, according to the latest CIPS/Markit report on services.

Rates of expansion were the slowest for five months, plus there was further, but modest, decline in employment.

David Noble, chief executive officer at the Chartered Institute of Purchasing & Supply, said: “A slightly downbeat start to the year for the services sector. This may be a temporary blip caused by one-off events rather than signs of a double-dip recession, but we can’t dismiss the possibility.

“The chaos caused by the snow hit this sector particularly hard, much more than manufacturing or construction, reducing the growth rates of activity and new business wins.”

The increase in VAT at the start of the year underpinned the strongest rise in input costs since October 2008 and also led to slightly higher output charges.

January’s seasonally adjusted CIPS/Markit Business Activity Index posted above the 50.0 no-change mark for a ninth successive month. The index weakened since December, falling to 54.5 (from 56.8) and signalled the slowest rise in activity for five months.

“In spite of this,” added Noble, “we’re still seeing a positive turnaround on a number of fronts. At ground level, employment is moving closer to a level of stabilisation and there’s even evidence of recruitment in the financial sub-sector. And, it seems the VAT increase coupled with growing confidence and demand has encouraged some firms to raise their output prices slightly.  

“Even with imminent tax increases and government spending cuts, confidence in the future is buoyant as wider economic pick-up is expected to offset any fiscal austerity to come.”

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.”

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