UK Service Sector Undergoes Another Contraction In January

UK service providers reported another reduction in their business activity at the start of the year largely due to subdued spending by both businesses and consumers, final results of the Purchasing Managers’ survey from S&P Global revealed Friday.

The Chartered Institute of Procurement & Supply services Purchasing Managers’ Index fell to 48.7 from 49.9 in the previous month.

The score has remained below the neutral 50.0 threshold for the fourth straight month, signaling contraction. However, the reading was above the flash estimate of 48.0.

“The latest survey illustrates that the UK economy risks falling into recession as labor shortages, industrial disputes and higher interest rates take their toll on activity,” Tim Moore, an economics director at S&P Global Market Intelligence, said.

The Bank of England forecast gross domestic product to contract 0.5 percent this year as high energy prices and the path of market interest rates weigh on output. The bank had raised its benchmark rate again by 50 basis points on Thursday.

The PMI survey showed that strong inflation and rising economic uncertainty weighed on household incomes and budget settling by corporate clients.

New business dropped for the fifth straight month amid subdued demand conditions. Heightened recession risks and higher borrowing costs were cited as major factors holding back new orders.

New export sales increased again mostly driven by rising demand from the US and Asia.

There was an increase in staffing numbers in January. However, the rate of job creation was among the slowest seen over the last two years.

Input costs faced by service providers were pushed up by tight labor market conditions. The increase was linked to strong wage pressures and rising energy bills. At the same time, average prices charged by service sector companies increased sharply.

Finally, positive sentiment among service providers was the strongest since April 2022.

The S&P/CIPS final composite output index that measures combined output in the manufacturing and services sectors slid less-than-estimated to 48.5 in January from 49.0 a month ago. The flash score was 48.0.

The reading has remained below the crucial 50.0 no-change mark for the sixth consecutive month. Moreover, this was the longest sequence of continuous fall since the global financial crisis in 2008.

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