Drop in UK services sector raises fears of triple-dip recession


Drop in the UK services sector in December 2012

Drop in the UK services sector in December 2012

Latest data showed a surprising drop in activity in the UK services sector. The visible decline in the services sector in December is the first decrease in about two years. The fall raises fears that the UK economy might enter triple-dip recession.

UK services PMI

The latest findings of the survey on the UK services sector are important as the segment accounts for as much as 75 percent of the overall activity in the UK economy. According to the Markit/CIPS data, the UK services PMI decreased to 48.9 in December from 50.2 in November. The reading is the lowest since April 2009 when the services sector saw a decline due to heavy environmental conditions. Certainly, the drop in activity in the UK services sector in December was surprising for many analysts as they had projected a small rise.

The drop in the UK services sector was mainly driven by new business slipping for a second straight month. In addition, companies underlined that UK customers were not so keen on spending due to growing economic uncertainty.

Analysts are not even surprised by the drop in the UK services sectors, they are shocked. Therefore many experts believe that GDP would be weaker for the last quarter of 2012 despite the fact that the UK economy increased by approximately 0.9 percent in the third quarter. Vicky Redwood, Chief UK Economist at Capital Economics, projected a 0.4 percent decrease in GDP in the last three months of 2012, adding: “Rather than just reflecting an unwinding of the Olympics boost, this seems to reflect more of an underlying weakness.”

Other analysts are convinced that the UK economy will drop by approximately 0.2 percent in the last quarter of 2012, resting on the latest reading of UK services PMI.

Triple-dip recession?

Latest data indicated that the UK economy had contracted in the final quarter of 2012. Analyst are convinced that the first drop in the UK services sector suggests that the economy is entering another recession. Analyst are convinced that the first drop in the UK services sector suggests that the economy is entering another recession. Certainly, Chancellor George Osborne did not foresee these results as just not so long ago he had announced the end of the second-dip recession and “cloudless sky”. Yet Britons have been pinning on him blame for sluggish economic growth as he has introduced some very unpopular decisions including the programme of spending cuts and tax rises.

Analysts believe the UK economy contracted in the final quarter of 2012, but also they are convinced that the Great Britain is likely to see its economic output decrease in the first three months of 2012, which would put the country in its third recession in approximately four years.

The situation is even more complicated as the UK has also been struggling amid weak demand in the eurozone which is driven by the European debt crisis. Many economic indicators suggest that the UK economy is entering the triple-dip recession and without a doubt it is a shock for many people who were pleasantly surprised by the recent announcement that the double-dip recession ended.

Richard Meryn
Richard Meryn, Associate Editor Industry Leaders Magazine (www.industryleadersmagazine.com)

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