Activity in the UK's dominant service sector declined at its fastest pace since May 2020 last month, according to new data from a closely watched private sector survey.
IHS Markit's service sector purchasing managers index (PMI) found a collapse in activity in January as the UK returned to lockdown. Business activity dropped sharply and job losses accelerated.
PMI is measured on a scale of 0 to 100, with anything below 50 signalling contraction and anything above marking growth. January's service sector PMI was 39.5, which was slightly better than economists had forecast and a slight revision to a flash estimate of January PMI given last month.
However, it means the sector - which makes up 80% of the economy - was firmly in contraction territory.
"Service providers experienced a steep downturn in business activity due to the third national lockdown in January, although the speed of decline remains much slower than last spring," said Tim Moore, economics director at IHS Markit. "Tight restrictions on travel, leisure and hospitality resulted in severely reduced trading among customer-facing businesses."
Staffing levels sunk for the eleventh month in a row and layoffs intensified in December, IHS Markit said.
Despite tough current conditions, optimism about future prospects hit the highest level since May 2014. 60% of businesses expect orders to improve over the next 12 months, with business leaders are pinning their hopes on the swift roll-out of the COVID-19 vaccine.
"While the UK economy is on course to contract sharply during the first quarter of 2021, businesses remain confident that pent up demand and an easing of pandemic restrictions will provide a springboard to recovery later this year," Moore said.
The service sector covers everything from banking and estate agency to waiting tables and acting. The sector accounts for around 80% of GDP, according to the Office for National Statistics.
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