Interest rates brake services expansion

3 August 2004
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04 August 2004 | Gareth Mytton

June's rise in interest rates made it harder for some UK services companies to win new business last month, according to the latest purchasing managers' index (PMI) report.

But activity in the sector still made another big monthly rise. The July services sector business activity index - a composite indicator of business conditions from CIPS and NTC Research - stood at 56.2, a fall on June's 56.8 but still well above the 50 figure that indicates no change on the previous month.

The hotels and restaurants sector enjoyed the sharpest growth, owing to strong seasonal demand, followed by transport and communications firms, along with business-to-business companies.

The new orders index slipped to 56.5, from 57.1 in June, as interest rates dampened demand in some sectors. However, 22.8 per cent of companies said trade had risen over the previous month.

Input price inflation eased for the second consecutive month, but the index remained high at 58.4. All parts of the services economy faced big rises, with the strongest inflation coming for transport companies. Just over a tenth of companies passed on the higher input prices to customers.

In the euro-zone, the services sector business activity index was unchanged at 55.3. A lack of confidence among German consumers led to slower growth in new orders than the other big four countries in the euro-zone. The strongest growth was in Italy, followed by France and Spain.

But unlike the UK, euro-zone companies were unable to pass rising input costs (58.1) on to customers, with the prices charged index stuck below 50 at 49.6.

The US non-manufacturing economy enjoyed stronger growth in July than in June, according to the Institute for Supply Management (ISM). Its PMI was 64.8, up from 59.9 in June.

Entertainment was the only sector that said activity had fallen, whereas 12 reported growing trade.

* More information on the UK and euro-zone PMIs is available at www.ntc-research.com. The full text of the ISM reports on the US economy for July, and previous reports, is available at http://www.ism.ws/ISMReport/index.cfm.

SMaug2004

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