Jobs were lost across the services sector for the second month in a row, casting doubt on its ability to compensate for cuts in the public sector. The figures are expected to worry the Treasury, which has replied to critics of its handling of the economy with assurances that private sector job creation would outstrip redundancies made by local councils and Whitehall departments.
Analysts said the downturn in services activity, which makes up more than 70% of the economy, also showed Britain could experience a two-speed recovery, with manufacturing boosted by a low pound while the services sector suffered a domestic spending clampdown brought about by government austerity measures.
Andrew Goodwin, senior economic advisor to the Ernst & Young Item Club, said that after the euphoria of Wednesday's strong manufacturing survey, the services data would be viewed as a disappointment.
He said: "While the sector continues to expand, it is doing so at a fairly sluggish pace which falls someway short of historical norms.
"The one ray of light is that new business has picked up, but even this remains relatively modest compared to pre-recession levels. It is interesting that firms suggest that a key reason for poor sales performance is concern over the government's fiscal retrenchment plans, even after October's spending review, which should have given them a much better idea of how things will play out."
The latest Markit/CIPS Purchasing Managers' Index (PMI) survey of the services sector – where a reading above 50 indicates growth – showed a slight decline from 53.2 in October to 53 in November. It also included reports that clients – particularly among consumers and the public sector – were hesitant to commit to new contracts given ongoing economic uncertainties and worries over public sector spending cuts. Expectations for the future improved slightly, but were well down on the levels of optimism in the summer.
Goodwin said private services had long been the engine of job creation in the UK. "With the public spending cuts due to begin in earnest over the next few months, it appears likely that we will see further increases in unemployment in the first half of next year," he added. Although the PMI sector has now grown for 19 months in a row, the rate of growth has slowed in recent months. It had been above 55 for consecutive months in the middle of the year.
David Noble, chief executive at CIPS, said: "Forward-looking indicators are already showing signs of instability, with purchasing managers reporting weak consumer demand. This is worrying as we would expect demand to be higher during the Christmas period." For the latest updates PRESS CTR + D or visit Stock Market news Today
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