Double blow for Britain's services sector

Hotels and restaurants felt the brunt of a double squeeze in November as British services firms failed to match the stunning growth enjoyed by manufacturers.

Consumers are tightening belts at the same time as rising food prices hammer margins, the latest Markit/Chartered Institute of Purchasing and Supply services index warned.

CIPS chief executive David Noble said firms reliant on consumer spending were fast becoming the "poor relations" of the sector, with shoppers set to take a fresh clobbering in the New Year when VAT rises.

The CIPS index, where a score over 50 shows growth, slipped to 53 from 53.2 over the month.

The sluggish showing contrasted starkly with manufacturers, where output surged at the fastest rate for 16 years in October. Services firms also shed staff for the second successive month and confidence remains low.

Manufacturing and trade are driving the recovery so far but Markit chief economist Chris Williamson expects growth to slow to just 0.4% in the final quarter based on the latest round of surveys. This is half the 0.8% pace seen between July and September.

Hetal Mehta, UK economist at Daiwa Capital Markets, added: "The underlying position for next year is still pretty fragile, particularly with employment in the sector falling at a faster rate."

Downbeat construction figures also gave more signs that the steam is running out of the sector's strong recent run. Orders between July and September were 4% down on the previous quarter after slumping public-sector spending.