Service sector recovers in December but stops short of growth

The UK’s services sector continued to struggle in December, but almost managed to get back into neutral territory, according to an influential survey.

The sector saw its best performance since September, and evidence showed that cost increases eased to their lowest point in 15 months.

The S&P Global/CIPS UK services PMI survey showed a reading of 49.9 last month, up from a score of 48.8 in November.

A score of 50 is considered to show that the sector is neither expanding nor contracting, anything above or below that shows growth or decline, respectively.

Economists had predicted that the measure would reach this break-even point in December, but it fell just short.

Despite some shoots of recovery from recent lows – which saw the PMI hit its lowest point since January 2021 when Covid restrictions were still in place – there was still anecdotal evidence of “a difficult operating environment”, the researchers said.

Costs were still high, with fuel and utilities pushing inflation. While the sector has created new jobs for each of the last 21 months, December saw job numbers stall.

Dr John Glen, chief economist at the Chartered Institute of Procurement and Supply (CIPS), said: “With more uncertainty than ever in the UK economy, squeezed service providers remained hampered by stubbornly high costs and low customer volumes and the sector remained in contraction.

“With reduced output for the third month in a row, the slowest rise in the cost of doing business for 15 months was not enough to stop service providers focusing on getting good value from their supply chains without racing to the bottom on price.

“This shrinkage has also started to impact on job creation levels which stalled for the first time in almost two years.

“With another drop in orders, especially from domestic customers, businesses were cautious about building more operating capacity which in turn will affect job seekers looking for the next pay rise to manage cost-of-living rises as the country braces itself for another recession.”