UK business activity contracted again last month despite the lifting of lockdown restrictions, new data revealed today.
The IHS Markit/Cips purchasing managers (PMI) index for services scored 49.4 in December, with any score below the 50 mark indicating contraction.
The reading was up on November’s score of 47.6, when much of the economy was stuck under further restrictions.
It was also markedly higher than across the continent, where a score of 46.4 was recorded for the Eurozone.
Combined with manufacturing figures from earlier this week, IHS Markit’s composite figures showed that the private sector grew marginally in December.
The drop in services activity was offset by strong manufacturing figures, which scored 57.5 on the index, giving a composite reading of 50.4.
The services downturn is overwhelmingly linked to business disruptions, restrictions on trade and temporary closures due to the coronavirus pandemic.
At the same time, margins were under pressure from sharply rising input costs and ongoing price discounting across the service economy.
Tim Moore, economics director at IHS Markit, said: “December data confirm that the UK service sector has swung back into decline after the partial rebound seen during the third quarter of 2020, largely reflecting tighter restrictions on consumer services amid the worsening trajectory of the pandemic.”
However, the survey also found that business expectations for the next 12 months rose to their most optimistic levels in six years.
Around 59 per cent of the survey panel forecast a rise in activity over the course of 2021, while only 13 per cent predict a decline.
Moore said that businesses were betting that a rapid rollout of coronavirus vaccines would power a strong recovery in the second half of the year.
But Howard Archer, chief economist for the EY Item Club, said that business would first have to contend with the new lockdown restrictions.
“With lockdown now back in place in England and restrictions elsewhere that are set to last through to mid-February at least, the economy will have a challenging start to 2021 and will undoubtedly experience contraction in the first quarter”, he said.
“The EY Item Club suspects that the first quarter decline in GDP could be in the region of 3-4 pe cent quarter-on-quarter. This would result in a double dip recession.”