UK on course for growth squeeze as services demand slides

The UK has suffered its first reduction in service sector output since December 2010, as expectations for the year ahead remain downbeat.

According to the latest Markit PMII data the level of incoming new work has slipped back for the first time in two years, and a contraction in UK growth is on the cards.

The headline index from the survey – the seasonally adjusted Business Activity Index – also fell and came in at 48.9 in December, down from its reading of 50.2 for November.

'General uncertainty over the direction of the economy and the lack of client expenditure weighed on the sentiment of service providers during the latest survey,' Markit said, while Capital Economics believes the gloomy reading implies a fall in fourth quarter GDP.

The consultancy's chief UK economist Vicky Redwood said the Business Activity Index had moved down for four consecutive months, adding that rather than focusing on Olympic demand unwinding, the lower readings are more likely suggesting underlying weakness.

Redwood said: A weighted average of the business surveys remains consistent with a renewed contraction in GDP in Q4...we still expect a 0.4% fall.'

Howard Archer, of IHS Global Insight, said the survey was 'very disappointing'.