Covid-19 hit demand in UK service sector

The cost of living crisis was the main reason why new orders fell as a result of the downturn in the economy last month, according to a closely watched survey.

The monthly purchasing managers index PMI by S&P Global and CIPS showed that the service sector contracted for a second month in a row as economic uncertainty hit demand.

The results of the survey of 650 service companies between November 11 and 28 produced a reading of 48.8 on the index, which was below the 50 mark separating growth from contraction. The level was unchanged from October and was in line with economists expectations.

Services account for the vast majority of economic activity in the UK, so a slump in the sector adds to fears that the country is heading for a recession.

Sales fell for the third consecutive month and recorded the biggest drop since the lock down in January last year. Businesses said budgets were tightening for both domestic and foreign clients.

Since the coronaviruses epidemic and the escalation of the Russia-Ukraine war in February, inflation has ripped through the global economy, putting many of the world's biggest economies on course for a downturn next year, as high prices weaken demand.

The prices set by companies for their services went up for a 23 rd consecutive month, but the rate of inflation fell to its lowest level in ten months, as lower demand made it less likely that companies could raise prices and maintain sales.

Inflation hit its highest level in more than four decades at 11.1 per cent in October, according to the latest figures from the Office for National Statistics.

Business confidence has rebounded since October due to increased political stability in the UK, but optimism among business leaders is one of the lowest levels recorded over the past decade, as a result of increased political stability in the UK.

Chris Williamson, chief business economist at S&P Global market intelligence, said the UK economy was facing its toughest time since the 2008 financial crisis, excluding the Pandemic. A further contraction signalled by the PMI surveys indicates a growing recession risk for the UK. The overall rate of economic contraction has kept steady compared to October, with gross domestic product GDP falling at a quarterly rate of 0.4 per cent. He said that inflows of new work fell at an increased rate, indicating slumping demand for goods and services, forcing companies to pare back their hiring, which resulted in only very modest employment growth. Martin Beck, chief economic adviser to the EY Item Club, said: Combining services reading with November s manufacturing survey, the composite PMI was also unchanged at 48.2, the fourth successive sub-50 contraction reading. The results added to evidence that GDP fell by 0.2 per cent in the third quarter of the year, but was on course to drop again in the present quarter, he said, adding that falling activity would likely lead the Bank of England's monetary policy committee to slow the pace of interest rate rises in its meeting on December 15.

The central bank lifted the base rate by 0.75 percentage points to its current level of 3 per cent last month, which was its biggest rate rise on record last month.