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05

Service sector growth stalls but UK economy 'gains momentum'

Open-access content Tuesday 6th June 2017 — updated 5.50pm, Wednesday 29th April 2020

The UK service sector experienced a slowdown in growth last month after hitting a four-month peak in April, according to the IHS Markit/CIPS UK Services PMI survey.

2

Despite another solid upturn in new business volume, the rate of expansion was the slowest recorded since February, with uncertainty surrounding the election, and a fall in consumer spending, thought to be partly responsible.

This was despite strong competition for new work and softer rates of input cost inflation leading to the weakest rise in prices charged by service sector firms since November 2016.

"The powerhouse driving UK GDP lost some of its force last month," CIPS director of customer relationships, Duncan Brock, said. "It was clear that slower new business growth let the side down, impacted by caution around the general election, and a tightening of purse strings.

"Not even stiff competition between businesses absorbing higher prices for food and the effects of the National Living Wage could tempt consumers to spend."

The service sector moved two points down in the IHS Markit/CIPS index from 55.8 in April to 53.8 in May, with any score above 50 signifying an improvement, and anything below that a deterioration.

However, May signified the tenth consecutive month above the 'no change' 50 score, with service providers reporting sustained job creation throughout that time, after a brief pause to staff hiring last July.

In addition, firms in the service sector are upbeat about their growth prospects, with 44% expecting a rise in business activity over the year ahead, compared with 8% who anticipate a decline.

This comes after two more surveys produced by IHS Markit/CIPS in the last week found the manufacturing sector remained resilient in May, and that construction rose at the fastest pace recorded since December 2015.

"Despite slower growth in May, the surveys indicate that the economy has regained some momentum in the second quarter," IHS Markit chief business economist, Chris Williamson, said.

"The three surveys are running at levels that are historically consistent with GDP growing at a robust 0.5% rate, albeit with the slowing in May posing some downside risks to the near-term outlook.

"However, firms generally remain upbeat and very much in expansion mode. The employment indicators are consistent with around 30,000 private sector jobs being added each month."


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This article appeared in our May 2017 issue of The Actuary.
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