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The Actuary The magazine of the Institute & Faculty of Actuaries

Service sector optimism hits 15-month high

The UK’s services sector is more optimistic than at any point since September 2018 following the general election and prospect of relative political stability.

Service sector employment rises ©iStock
Service sector employment rises ©iStock

That is according to findings from the latest IHS Markit/CIPS UK Services PMI survey, which suggest a short-term boost to business activity when the first stage of Brexit is resolved.

The results also reveal a modest expansion of new work received by service sector companies last December, ending a three-month period of decline.

Moreover, the findings show a marginal increase in new employment, with the latest upturn the fastest recorded for five months.

"With the fastest level of job creation since the summer and a bounce in business optimism not seen since September 2018, commentators could be forgiven for believing there could potentially be a turning point on the horizon if the UK plays its cards right," said Duncan Brock, group director at the Chartered Institute of Procurement & Supply.

The IHS Markit/CIPS UK Services PMI Business Activity Index registered 50 in December, up from 49.3 in November, signalling a stabilisation of overall service sector activity.

However, wage pressures helped drive a strong increase in average cost burdens, with the rate of inflation picking up from the 39-month low recorded in November.

Despite this, prices charged by the services sector increased only slightly in December.

Backlogs of work decreased for the fifteenth consecutive month, although the rate of decline was only modest, and service providers often cited sufficient spare capacity.

As for the broader economy, the researchers warned that a relative stabilisation of service sector activity has been offset by a sharp and accelerated decline in manufacturing output.

"Service companies widely commented on delayed spending decisions and a headwind to sales from domestic political uncertainty in the run-up to the general election," said Tim Moore, economics associate director at IHS Markit.

“With manufacturing and construction output also subdued in December, the latest PMI surveys collectively signal an overall stagnation of the UK economy at the end of 2019.”

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