UK service sector shrank for the first time in two years in December, suggesting that the country’s economy may re-enter recession. According to Markit Economics and the Chartered Institute of Purchasing and Supply, Britain’s service sector activity shrank from 50.2 in November to 48.9 in December. This is a clear indication that the country’s economy is heading towards a recession, as a reading below 50 is usually a sign of contraction.
According to Markit, this fall in service sector activity combined with manufacturing and construction figures show that the country’s economy is contracted by 0.2 percent in the final quarter of 2012. The UK’s manufacturing index rose up from 49.2 in November to 51.4 in December, the highest in 15 months, while the country’s construction measure dipped to a six-month low in December.

Chris Williamson, the chief economist at survey compilers Markit said, “The first fall in service sector activity for two years raises the likelihood that the UK economy is sliding back into recession.”

Rob Wood, an economist at Berenberg Bank in London said, “The economy is basically flat-lining… Fragile but stable is the best way to describe the UK right now. Any small shocks could easily knock the UK off course.”
The pound dropped against the dollar for a second day in a row to the lowest in nearly four weeks. As of January 03, 2013, the value of pound declined by 0.9 percent against the dollar, while it weakened by 0.5 percent to $1.6022 as of 11:13 a.m. on January 04 in London.

According to a report by Markit, Britain’s index of euro-area services increased from 46.7 in November to 47.8 in December. The reading for this index has been lower than 50 for11 months.  A composite of services and manufacturing was at 47.2, below an initial estimate of 47.3. “Underlying demand remains very weak” said Williamson, “activity may continue to fall in the New Year.”

Despite the grim picture of Britain’s economy, increase in the number of mortgage approvals is keeping the hope alive for the country. According to a report by the Bank of England, number of mortgage approvals increased from 53,071 in October to 54,036 in November, a 10-month high. Earlier, the central bank reported that there was significant increase in mortgage availability in the last quarter of 2012.

According to Bloomberg surveys, non-farm payrolls in the U.S. increased by 153,000 in December, followed by an increase of 146,000 in November. When it comes to Asia, the purchasing managers’ index in India rose from 52.1 in November to 55.6 in December, while China’s services activity gauge dropped from 52.1 in November to 51.7 in December.