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UK service sector activity stabilizes as new work rebounds

Business activity in the U.K. services sector stabilized in December 2019 as new work posted the sharpest expansion since July 2019, data from IHS Markit and the Chartered Institute of Procurement & Supply showed.

The seasonally adjusted Business Activity Index for the U.K. services sector rose to 50.0 in December 2019 from 49.3 recorded in the prior month. The latest print was also higher than the flash estimate and the Econoday consensus forecast of 49.0. A reading below 50.0 indicates contraction.

New work registered a modest expansion, ending a three-month streak of declines. Domestic political uncertainty ahead of the U.K. general election primarily weighed on new orders, IHS Markit said, citing anecdotal evidence.

Business optimism soared to the highest level since September 2018, with a number of survey respondents expecting short-term improvement in business activity after the resolution of the first phase of Brexit.

Staffing levels marginally increased across the services sector, marking the quickest upturn in employment for five months. In addition, backlogs of work fell for the 15th successive month, albeit at a modest pace.

The U.K. Composite Output Index, a weighted average of manufacturing output and services business activity data, remained unchanged in December 2019 at 49.3, the joint-lowest reading since July 2016. An accelerated decline in manufacturing output offset a stabilization of service sector activity, IHS Markit noted.

"With manufacturing and construction output also subdued in December, the latest PMI surveys collectively signal an overall stagnation of the UK economy at the end of 2019," said Tim Moore, economics associate director at IHS Markit.