The closely watched IHS Markit/CIPS Services purchasing managers’ index gave a reading of 49.4 last month.
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The UK services sector saw activity fall for the second consecutive month in December as businesses were weighed down by coronavirus disruption, according to figures.
The closely watched IHS Markit/CIPS Services purchasing managers’ index (PMI) gave a reading of 49.4 in December, as the rate of decline slowed following a 47.6 reading in November. A reading below 50 is seen as a reduction in activity.
It came in below the expectations of analysts, with a consensus forecasting a reading of 49.9 last month.
The report said firms revealed that margins were also under pressure during the month due to sharply rising costs and price discounting in a bid to drive trade.
Tim Moore, economics director at IHS Markit, said: “December data confirm that the UK service sector has swung back into decline after the partial rebound seen during the third quarter of 2020, largely reflecting tighter restrictions on consumer services amid the worsening trajectory of the pandemic.
“Shrinking demand resulted in additional price discounting to stimulate sales at the end of the year.
“Margins were also hit by a sharp and accelerated rise in operating expenses, which were linked to transport shortages and the pass through of higher freight costs by suppliers.”
Firms that saw a decline in business activity in December “almost exclusively” cited shrinking client demand and restrictions due to the pandemic.
Export sales for the month were also weak, with survey respondents saying new business from abroad fell in December.
However, expectations for new business growth jumped on the back of vaccine hopes, while the rate of job losses also slowed down.
Duncan Brock, group director at the Chartered Institute of Procurement & Supply (CIPS), said: “Both domestic and overseas customers were hindered by uncertainty around the continuing impact of the pandemic along with concerns ahead of Brexit which stopped client spending in its tracks apart from some stock-building activity.
“However, seemingly contrary to this evidence, business optimism for the next year was at its highest since 2015.
“Lessons learned from previous lockdowns gave businesses hope along with a vaccine-fuelled confidence to find new and creative ways of operating, using Government schemes and maintaining staffing levels as job falls slowed to March 2020 levels.”