"Bad weather is likely to have played a role in dampening service sector activity in December..."
- Chris Williamson, chief economist at Markit
Activity in the U.K. service sector shrank unexpectedly for the first time in two years last month, adding to concerns that the economy will not start gaining momentum in the nearest future. According to the Markit Economics and the Chartered Institute of Purchasing and Supply, a gauge of activity in the service sector declined to 48.9 from 50.2 in November, while analysts expected no change. Any score below 50 indicates the sector is contracting. The main reason for such a decline is a slight reduction in incoming new business, as companies are reluctant to make more spending and are tightening budgets. The report also showed that the economy is expected to shrink by 0.2% in the final quarter of 2012.
"Bad weather is likely to have played a role in dampening service sector activity in December, but the fact that incoming new business dropped for a second successive month suggests that underlying demand remains very weak and that activity may continue to fall in the new year," said Chris Williamson, chief economist at Markit.
"Given the dominant role of the services sector and the fact that it has recently been the healthiest part of the U.K. economy on the output side, the reported fall in activity in December is a significant blow for growth hopes," said Howard Archer, an economist at IHS Global Insight.
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