Winter freeze hits UK services sector

 
Julian Harris
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SNOW and adverse weather during December were blamed for a contraction in Britain’s services sector, yesterday.

The country’s largest sector experienced its first decline for 20 months, stalling the recovery.

Yet economists hope business activity will pick up this month – assuming there is no return to arctic conditions.

“It is worth noting that in January last year, when the weather was similarly disruptive, the index fell, only to then bounce back the following month,” said Simon Hayes of Barclays Capital.

The business activity index, compiled by Markit and the Chartered Institute of Purchasing and Supply (CIPS), dropped to 49.7, down from 53 in November.

All figures below 50 signal a contraction in the industry. Figures above 50 indicate growth.

And levels of new business also fell, “with companies widely blaming the poor weather for market disruptions,” the report said.

Yet respondents still expect their businesses to grow this year.

“It’s encouraging to see that business confidence for next year continued to improve slowly with the promise of stronger economic recovery,” said David Noble of CIPS.

Service sector business expectations increased to 66.5 in the index.

Restaurants, hotels and the catering industry were particularly affected by the weather, as well as rising prices.

Prices increased even on the previous month, according to more than one in five survey respondents.

Input prices increased at the sharpest rate in over two years, the report said.

Yet competitive pressures prevented service providers from passing the price rises onto their clients. Absorbing the price pressures, companies reported a decline in their profitability.

And companies with government clients reported a weakness in demand from the public sector, as this year’s fiscal consolidation prepares to kick in.