LONDON (Reuters) – Britain’s services sector shrank slightly for a second month running in November, as cost-of-living pressures for households and businesses’ uncertainty about the economic outlook squeezed demand, a survey showed on Monday.
The S&P Global/CIPS purchasing managers’ index (PMI) for the services sector held at 48.2 last month, matching October’s 21-month low and an earlier ‘flash’ estimate for November.
Combined with last week’s manufacturing PMI, the data pointed to Britain’s economy shrinking at a quarterly pace of 0.4%, S&P Global economist Chris Williamson said.
“This is the toughest spell the UK economy has faced since the global financial crisis excluding only the height of the pandemic,” he said.
The composite PMI, which combines services and manufacturing, held at 48.2, its lowest since January 2021 when Britain was in a COVID-19 lockdown.
Both the Bank of England and the government’s Office for Budget Responsibility estimate that Britain’s economy is entering recession, after output dropped by 0.2% in the three months to the end of September.
Britain is likely to see Europe’s biggest fall in economic output next year outside Russia, the Organisation for Economic Co-operation and Development (OECD) forecast last month.
S&P Global said businesses reported greater confidence than in October, when morale suffered a severe knock following political and financial market turmoil caused by September’s mini-budget, but sentiment remained “historically subdued”.
Consumer demand has been squeezed by the highest inflation in 41 years, at 11.1%, and business customers were cautious about spending, respondents to the PMI survey said.
While cost pressures have eased somewhat for manufacturers, they picked up in the services sector and are not much below the record levels seen earlier in 2022.
Businesses cited higher wage costs, energy bills and prices for raw materials such as food, while increased competitive pressure meant they raised the prices they charged at the slowest pace since January, before Russia invaded Ukraine.
Unlike in the manufacturing sector, services employers are still increasing staff numbers, though at the slowest pace since February 2021.
“There were some reports of hiring freezes and the non-replacement of leavers as firms grew concerned over costs and operating margins,” S&P Global said.
(Reporting by David Milliken; Editing by Toby Chopra)