THE services sector in the UK has contracted for the fourth consecutive month, figures out yesterday revealed.
The Chartered Institute of Purchasing and Supply (CIPS) services index showed overall activity at a reading of 49.2 in August – better than analysts' expectations, but still below the flat rate figure of 50.
Any reading below 50 signals industry
contraction.
The survey, which covers enterprises from cafes and hotels to IT services firms, showed that new business was also slowing for the fourth month in a row, although at a less rapid rate than in previous months.
Respondents to the survey reported a high degree of uncertainty in product markets, and said that spending among clients largely "remained on hold" given the downturn in the property market and the continued negative economic effects of the credit crunch.
Separate figures for Scotland are not available, but a spokesman for the British Hospitality Association said anecdotal evidence suggested that the sector had experienced a slowdown in both Edinburgh and Glasgow in recent months.
Business expectations improved slightly from July's record low, although they remained well down on the survey average and the sector shed jobs for the fourth successive month.
Services firms are still facing pressures from energy prices and food and labour costs, although input costs eased to a five-month low amid reports of lower fuel prices.
Hetal Mehta, senior economic adviser to the Ernst & Young Item Club, said: "With services accounting for three-quarters of the UK economy and other sectors also struggling, the UK economy is heading towards recession."
Paul Smith, senior economist at Markit Economics, said: "The rise in the headline index provides hope that the downturn of recent months may have passed its lowest point. However, it would seem a little premature to herald this given the continued downside risks to growth that exist."
Cost pressures were another reason behind lay-offs in August, with companies signalling that utilities and goods bought from suppliers had continued to rise in price.
There were also reports that food and wage costs had increased.
As a result, overall input price inflation remained elevated, though it eased to a five-month low amid some reports of reduced fuel costs.
To combat price rises, service providers continued to raise their own output charges during August, taking the average prices charged index to 55.2.
The lowering of input costs could be one factor which prompts the Bank of England's monetary policy committee to leave interest rates on hold at 5 per cent when it meets today.
The full article contains 429 words and appears in The Scotsman newspaper.
