UK services drop as Covid-19 restrictions bite
By Sean Farrell
Date: Wednesday 06 Jan 2021
(Sharecast News) - UK services activity dropped in December and margins came under pressure from rising costs and discounted prices, a survey showed.
The IHS Markit/CIPS purchasing managers' index registered 49.4, up from November's score of 47.6 but below the 50 mark that divides shrinkage from growth. The reading fell short of expectations and an earlier "flash" score of 49.9.
December's result took the score for the final quarter of 2020 to 49.5 - a contraction compared with a solid recovery of 57.1 in the third quarter.
The downturn was overwhelmingly linked to business disruption, restrictions and closures caused by the Covid-19 crisis as the government imposed tighter constraints in an effort to contain a resurgence of the disease.
Any growth in services, which make up about three-quarters of the UK economy, was almost entirely confined to the booming residential property market, business-to-business trading, especially ecommerce, and digital consumer services.
The survey, which includes retail, finance and hospitality, showed a drop in backlogs of work as demand fell. Input costs rose but service sector prices fell for the fourth month running.
Business expectations strengthened to the highest for six years with 59% of respondents predicting higher activity in 2021 on hopes that the pandemic will be brought under control.
The survey finished on 21 December, after the discovery of a more infectious strain of Covid-19 but before the government's new lockdown designed to stem a surge in cases.
Tim Moore, economics director at IHS Markit, said: "The UK service sector has swung back into decline after the partial rebound seen during the third quarter of 2020, largely reflecting tighter restrictions on consumer services amid the worsening trajectory of the pandemic.
"With a third national lockdown underway, service providers will be braced for a sustained period of subdued UK economic conditions and deferred client spending in the first quarter of this year. However, business optimism on a 12-month horizon was relatively upbeat."
Export sales stayed weak as new business from abroad dropped sharply. Respondents cited severe restrictions on international travel and heightened Brexit uncertainty as reasons for the weakness.
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