Bad weather hits service sector as growths declines

Feb 4 2010 by Iain Laing, The Journal

GROWTH in the UK services sector slowed sharply last month after snow-related disruption hit levels of activity and new business.

The latest reading from the Chartered Institute of Purchasing and Supply (CIPS) – where a score over 50 indicates growth – registered 54.5 in January, a fall from 56.8 in December and the report’s lowest figure since August. It left experts wondering whether the decline represented a one-off blip due to the weather or the start of a fresh wave of pressure on the UK economy.

CIPS chief executive David Noble said: “The chaos caused by the snow hit this sector particularly hard, reducing the growth rates of activity and new business wins. In spite of this, we’re still seeing a positive turnaround on a number of fronts.”

He said there were signs of stabilisation in employment levels while January’s VAT increase and general improvement in confidence had encouraged some firms to raise their output prices – the first such increase for 15 months.

Areas covered by the services sector include transport and communication, financial advice, computing and IT and hotels and restaurants.

The decline was much steeper than the City’s forecast for a reading of around 56.5. In contrast, the corresponding study of the manufacturing sector showed a bigger than expected jump in growth to a 15-year high of 56.7.

Hetal Mehta, senior economic adviser to the Ernst & Young ITEM Club, said the services sector was still expanding at a “fairly robust pace“.

However, she added: “Even if most of the lost output from the bad weather in January is recouped in the following months, VAT is now back at 17.5%, tax rises are on the way and credit conditions have been slow to improve.