Service sector continues to contract despite change in government, survey shows

The UK’s difficult economic performance has remained unchanged after the change of government even though markets calmed, experts said on Monday, after new figures showed continued malaise in the important service sector.

Remaining at its two-year low, the sector contracted again in November, but the rate of decline at least did not speed up compared to the month before.

The S&P Global/CIPS UK services PMI survey scored the service sector 48.8 in November, in line with expectations and unchanged compared to October. They are the joint lowest scores since January 2021.

The survey is sent to thousands of businesses and the responses are used to set a score where anything below 50 is considered a contraction, and vice versa.

“A change of government and its new economic policies may have helped arrest some of the financial market volatility after September’s ‘mini-budget’ but the economic picture remains stubbornly unchanged,” said Chris Williamson, chief business economist at S&P Global
Market Intelligence.

“The overall rate of economic contraction has held steady compared to October, indicative of GDP falling at a quarterly rate of 0.4%.

“As such, this is the toughest spell the UK economy has faced since the global financial crisis excluding only the height of the pandemic.”

The survey is the latest in a series of economic indicators which imply that the UK might already be in the grips of a recession, or at least land there soon.

Data released by the Confederation of British Industry on Monday, separately forecast tthe UK economy would shrink next year – although the CBI is slightly more positive about the depth of the recession than many others.

The PMI survey showed the amount of new work that service businesses are winning continued to fall, as people cut their spending during the cost of living squeeze.

Cost pressures are also continuing to weigh on these companies – they reported that operating expenses once more rose sharply.

“Although business confidence in the outlook has lifted from October’s recent low, largely reflecting signs of improved political stability at home, an overall gloomy mood prevails to restrain business optimism at one of the lowest levels seen over the past decade,” Mr Williamson said.

Dr John Glen, chief economist at the Chartered Institute of Procurement and Supply (CIPS), said: “It looks like supply chain issues for most goods have evened out along with the political landscape giving the marketplace some more stability.

“But there is no doubt now that the UK is in recession, and consumers are likely to be worried about the cost of living and keeping warm, rather than too much festive fun making in the last quarter of a challenging year all round.”