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UK Private Sector Contracts Most Since May

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The UK private sector contracted the most in six months in November due to the fastest reduction in service sector output since May amid temporary closures among leisure and hospitality companies, flash survey results revealed Monday.

The IHS Markit/Chartered Institute of Procurement & Supply composite output index dropped to 47.4 in November from 52.1 in October.

A score below 50 indicates contraction. However, the score was above economists' forecast of 42.5.

The service sector contracted notably in November as the second lockdown weighed heavily on leisure and hospitality sector. In contrast, manufacturing production expanded at a robust pace in November and the rate of growth accelerated since the previous month.

The services Purchasing Mangers' Index slid sharply to 45.8 from 51.4 in the previous month. The score was seen at 52.3.

Meanwhile, the manufacturing PMI rose to 55.2 in November from 53.7 a month ago. The expected reading was 53.3.

Demand from export markets, especially from China and the EU underpinned the manufacturing sector growth.

According to Markit, the underperformance of the service economy relative to the manufacturing sector was the widest in almost 25 years of data collection.

The deterioration in the overall private sector was less severe than reported during the first round of restrictions back in the spring, James Smith, an ING economist said.

For 2021, the outlook looks better, albeit still mixed. Initial supply chain disruptions from Brexit remain a clear possibility, the economist said. While this is unlikely to deliver a Covid-19 style hit to GDP, it will drag on the recovery.

Meanwhile, the news on vaccines offers a clear upside to 2021, but for the economy, a lot will also hinge on how and when the unprecedented furlough support is unwound, Smith added.

Total new work received by UK private sector firms decreased for the second month. Job shedding accelerated across the private sector, with the rate of decline in staffing numbers the steepest for three months.

Looking ahead, private sector companies remain optimistic that business activity will increase during the next 12 months. The degree of optimism was the strongest since March 2015.

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