* Falls to 49.7 from 53.0 (Reuters poll 53.0)
* December snow, looming spending cuts depress new orders
* Markit says PMI points to Q4 GDP growth slowing to 0.4 pct
* UK PM Cameron: road to recovery tough but within reach
* Sterling dips vs dollar on data
(Adds Cameron comments)
By David Milliken
LONDON, Jan 6 Large swathes of Britain's service
sector suffered their first fall in output since April 2009 last
month, a survey showed on Thursday, pointing to a sharp slowdown
in economic growth at the end of 2010.
British GDP probably grew by just 0.4 percent in the last
three months of 2010, lower than many economists have forecast
and barely half the 0.7 percent recorded in the third quarter of
the year, survey compilers Markit said.
Prime Minister David Cameron, seeking to soothe fears about
the economy and the impact of government austerity measures,
warned it would not be easy to return to strong, sustainable
growth but said full recovery was within reach. [ID:nLDE7050YC].
The Markit/CIPS services purchasing managers' index dropped
to 49.7 in a December marked by unusually snowy weather, in
contrast to forecasts that it would hold steady at November's
reading of 53.0. Readings below 50 indicate contraction.
Sterling weakened by about half a cent versus the dollar on
But the reaction on the government bond market was muted,
and economists said the figures did not mean service sector
contraction was inevitable in 2011, as activity had bounced back
strongly from similar weather disruption in early 2010.
"I'm a little surprised by the market reaction as I would
have thought that it was fairly clear that the weather was going
to have a substantial negative impact," said Stephen Lewis,
strategist at Monument Securities.
"However, looming public spending cuts will have more of an
impact on services than manufacturing so there probably is some
underlying weakness creeping in there."
Tuesday's manufacturing PMI survey showed the strongest
activity growth in 16 years -- driven by strong export demand--
while Wednesday's construction PMI showed activity heavily
disrupted by Britain's coldest December in 100 years.
"This is a very disappointing end to the year," said Markit
chief economist Chris Williamson. "UK economic growth is
completely reliant upon export sales while domestic demand has
FIRST CONTRACTION IN 20 MONTHS
December was the first time the services PMI fell below 50
in 20 months. The survey covers firms making up about 40 percent
of the economy, and excludes retailers and the public sector.
Evidence from retailers' post-Christmas earnings statements
suggests snow kept shoppers away, pointing to a weak
contribution from retail too when official fourth quarter GDP
data is released on Jan. 25.
Markit said anecdotal evidence suggested December's weather
was also the main factor behind the fall in the services index.
Another problem was the biggest fall in new business since
April 2009, with public sector demand especially poor. Global
recruitment company Hays has reported poor British performance
as demand from the public sector for temporary staff melts away.
"There are no short cuts to economic recovery, and I don't
promise that the road ahead will be an easy one," Prime Minister
Cameron said in a speech in northern England. "But ... I am
confident that we can have strong growth."
Major public spending cuts planned for this year are
weighing on the prospects of many private-sector service
companies, while manufacturers are finally benefiting from the
sharp fall in sterling in 2008 as the global economy recovers.
One problem both manufacturers and service companies share
is rising input costs. Thursday's survey showed a rise in the
services input price index to 60.5 from 57.1, its highest level
since September 2008. Manufacturing input prices rose in
December at the fastest pace since the survey began in 1992.
Hotels and restaurants were the service sector suffering
most from the rising cost of food and fuel, and also one of the
worst affected by poor weather, alongside "personal services"
such as hairdressing and domestic cleaning firms.
However, prices charged by businesses grew only slowly,
which is likely to reassure the Bank of England that the dangers
are limited for consumer price inflation, which is already more
than a percentage point above target at 3.3 percent.
Separate figures from the BoE on Thursday showed that
lenders expected credit availability to businesses and
households to remain steady in the first three months of 2011.
(Editing by Stephen Nisbet, John Stonestreet)