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The Actuary The magazine of the Institute & Faculty of Actuaries

Service sector growth grinds to 11-month low

The UK’s service sector experienced its weakest rise in business activity since September 2016 last month, according to the latest IHS Markit/CIPS UK Services PMI survey.

Service sector growth stalls ©Shutterstock
Service sector growth stalls ©Shutterstock

Respondents said that “subdued client demand and heightened uncertainty” had weighed on business activity growth in August, while fragile confidence had delayed clients’ spending decisions.

The findings also pointed to higher cost pressures across the service sector, with the rate of input price inflation the fastest recorded since February.

“With tighter market conditions and increased operating expenses, businesses had to raise their own prices to customers, reducing their pool of willing buyers,” CIPS director of customer relationships, Duncan Brock, said.

Despite this, hiring across the sector reached a 19-month high in August, with the rate of job creation accelerating for the third consecutive month.

This was partly driven by the firms experiencing their steepest rise in backlogs of work since July 2015, with businesses having to respond to rising workloads and pressures on operating capacity by recruiting.

And although the service sector dropped from 53.8 to 53.2 in the IHS Markit/CIPS business activity index last month, August marked 13 consecutive months above the no-change value of 50, signifying improvement for the sector.

In addition, the latest data reveals that service providers’ business confidence edged up to a three-month high, although still subdued in comparison to those seen prior to the EU referendum.

Companies expecting a rise in business activity over the next 12 months predicted organic growth, resilient client spending and new product launches, although Brexit-related uncertainty continues to undermine this.

The findings follow two other PMI surveys that showed UK manufacturing increased at the steepest pace seen in seven months in August, but that construction output increased at its weakest rate for a year.

“Although the latest two months’ data put the economy on course for another 0.3% expansion in the third quarter, momentum is being gradually lost,” IHS Markit chief business economist, Chris Williamson, said.

“Robust manufacturing growth means the economy may be rebalancing towards goods production, aided by the weaker pound, but the slowdowns in services   and construction send warning signals about the health of the economy.”

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