Economy stagnates in December as service sector orders improve

The UK’s service sector flatlined in December as improving business order books helped to stop decline from the previous month.

The closely-watched IHS Markit/CIPS UK services purchasing managers’ index (PMI) ticked up slightly to 50, from a figure of 49.3 in November.

Output for the sector stagnated during December as a figure above 50 indicates growth while one below that represents contraction.

It surpassed the expectations of analysts, who had forecast that industry would see a worsening level of decline, predicting a reading of 49.1 for the month.

This improvement was driven by the sharpest rise in new work since July on the back of a more stable political backdrop.

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: “A marginally less volatile picture emerged in December as the sector was rescued by a small uplift in new orders for the first time since August, elevating it out of its doldrums, but only just.

“European customers were less convinced, experiencing ongoing Brexit nerves, and were unwilling to take out their wallets.”

The industry survey for the final month of 2019 followed figures for the manufacturing and construction which highlighted a lack of growth in the UK economy.

Tim Moore, economics associate director at IHS Markit, said: “Service companies widely commented on delayed spending decisions and a headwind to sales from domestic political uncertainty in the run-up to the general election.

“With manufacturing and construction output also subdued in December, the latest PMI surveys collectively signal an overall stagnation of the UK economy at the end of 2019.”

Business optimism also improved during the month as greater political certainty resulted in the highest rate of optimism for 15 months.

Staffing levels also increased across the sector at the fastest rate for five months, the survey revealed.

Some businesses said the political backdrop ahead of the election had weighed on new orders in previous months, allowing for new order growth in December.

However, export sales continued to decline for the fourth consecutive month, with some firms linking this to a “lack of clarity in relation to Brexit”.