UK service sector shrinks

There are fears over the economy after figures suggested the service sector shrank last month for the first time in two years. It comes after disappointing construction figures yesterday.

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Construction contraction in December

Figures released yesterday showed the construction sector contracted at its fastest rate in six months in December driven by house building being at its lowest in two years.

Construction contracted in December Credit: Rui Vieira/PA Wire

Forecasters had predicted a reading of 49.5 but the index was at its lowest since June, when poor weather and extra public bank holidays dented output.

Construction only accounts for 7% of Britain's GDP but its troubles reflect the weakness in the wider property sector.


Poor service figures raise 'likelihood of recession'

Service sector firms reported a slide in new work in December amid budget constraints and a lack of confidence, which was the second back-to-back decrease in new work since mid 2009.

Bad weather was also thought to have been a factor behind the overall contraction in the services sector as Britain was hit by persistent rain.

Poor service sectors figures will raise 'likelihood of recession' Credit: Chris Young/PA

Chris Williamson, chief economist at Markit, said the service sector blow "raises the likelihood that the UK economy is sliding back into recession".

The UK would have to suffer two consecutive quarters in a row of declining output to be officially declared back in recession.

End of 2012 was worst economic performance for three years

The drop marked the first dip in the services sector since a snow-related decline in December 2010 and comes after disappointing construction figures yesterday.

Experts said the decline for the services sector, which makes up around 75% of total output, gives a clear signal that the economy went back into reverse in the final quarter of 2012.

Market economists said surveys across the services, manufacturing and construction sectors suggest Britain suffered its worst performance in the final three months of 2012 for more than three years, pointing to a 0.2% contraction in GDP.

This would come as a marked reversal of the 0.9% hike in the third quarter.

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