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06

Business growth in service sector hits nine-month low

Open-access content Wednesday 5th July 2017 — updated 5.50pm, Wednesday 29th April 2020

UK service providers reported the weakest upturn in new work since September 2016 last month, according to the latest IHS Markit/CIPS UK Services PMI survey.

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Respondents commented on subdued business confidence as responsible for the slump, while anecdotal evidence suggests Brexit-related risk aversion and heightened economic uncertainty were key factors holding back client spending.

In addition, the research shows that business growth optimism for the year ahead fell to the second lowest recorded since December 2011 last month, with inflationary pressures continuing to hit consumers.

"With business optimism having been hit by the intensification of political uncertainty, and households battling against rising inflation, the indications are that the economy's resilience is being tested," IHS Markit economist, Chris Williamson, said.

The service sector moved two points down in the IHS Markit/CIPS index from 53.8 in May to 53.4 in June, with any score above 50 signifying an improvement, and anything below that a deterioration.

Firms reported greater operating costs in June, linked to a combination of rising staff salaries and increased raw materials, while intense competition for new work placed pressure on pricing power.

The results complete a "triple whammy" of disappointing PMI survey readings this week, which also showed slowdowns in the manufacturing and constructions sectors.

"Although the three PMI surveys are running at levels that are historically consistent with GDP growing by around 0.4% in the second quarter, it's clear that the economy heads into the third quarter losing momentum," Williamson added.

Despite subdued growth, the results for the services sector show a slight pick-up in the pace of job creation, which was at its fastest rate for 14 months in June, while providers also reported a rise in unfinished work.

Even though the pace of backlog accumulation was among the fastest seen over the past years, respondents to the survey highlighted their worries about the general economic outlook.

"At this stage it's hard to tell if this is a sign of things to come or if this lack of enthusiasm is just a temporary response to increasingly tough trading conditions," CIPS director of customer relationships, Duncan Brock, said.


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