UK service sector slows, but productivity up

UK SERVICE sector activity declined by 0.4 per cent in October, giving back more than half of the previous month's 0.7 per cent rise, official data has showed.

The Office for National Statistics said half of the drop was accounted for by a drop in the “government and other services” category, reflecting the start of what is expected to be a prolonged austerity campaign.

It was the biggest monthly decline in services activity since April – but experts cautioned that monthly numbers are volatile, and when comparing the three months to October with the previous three months, services output rose 0.6 per cent.

“While the drop in services output in October is disappointing, it is important not to read too much into it. Overall, the evidence suggests that the services sector is currently still seeing moderate expansion,” said Howard Archer, chief economist at HIS Global Insight.

This quarterly rise was just ahead of the 0.5 per cent growth registered in September.

The data offer the first official glimpse of how the UK’s biggest economic sector fared in the fourth quarter of the year, and Archer admitted they were evidence that services were already being affected by government cutbacks.

The ONS also reported that productivity across all sectors of the economy rose a modest 0.1 per cent in the third quarter.

The gain lifted the annual rate of growth to 1.7 per cent, its highest since the third quarter of 2007.

Archer said: “The reduced improvement in productivity in the third quarter reflects the fact that companies took on more workers.

"However, the fact that productivity rose more quarter-on-quarter in terms of output per hour worked in the third quarter than in terms of output per worker reflects the fact that many of the jobs added were part-time.

“This suggests that companies remained reluctant to add full-time employees given a still uncertain longer-term economic outlook.”

Unit wage costs fell by 0.5 per cent compared with the same quarter a year ago, the biggest fall since 1994, the statistics office said.