Services sector reaches three-month high

3 November 2005
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03 November 2005 | Helen Gilbert

Improved economic conditions, new business clients and new products were among the factors that helped boost activity in the UK services sector to a three month high in October, according to the latest purchasing manager's index (PMI) report.

The overall CIPS/Royal Bank of Scotland PMI - a composite indicator in which an index above 50 indicates growth - registered 56.1.

The level is broadly in line with the long-run series average, but the figure compared favourably to September's rate of 55.0.

Service providers credited improved economic conditions, which led to fresh contract wins from both new and existing clients. The report said: "growth was supported further by the introduction of new products and continued commercial activities.

"October data suggested strong business spending as the Business Services category was among the top performing sub-sectors."

Capacity pressures were limited as the volume of outstanding business grew only marginally - the seasonally adjusted Oustanding Business Index stood at 50.3.

A number of panellists reported how improved efficiency at their units had enabled them to increase activity with both incoming new work and existing contracts. Meanwhile, the recruitment of additional staff also helped companies limit backlog growth.

Despite an input price index fall from 61.2 in September to 59.2 in October, the report revealed that UK service providers were still operating in a high-cost environment.

High energy, fuel and utility prices were reported to have driven overall inflation, with further pressure on operating expenditure stemming from increased labour costs, linked in some cases to a rise in the minimum wage. As a result, some companies raised output charges.

However, the majority of organisations were optimistic about future business prospects. Fuelled by recent new contract wins and the performance of recently introduced services, the business expectations index stood at 72.0, although there was still concern around the wider economic outlook.

Roy Ayliffe, director of professional practice at CIPS said: "Purchasing managers noted further growth in the UK services sector in October, as activity rose to a three month high, having dipped to a nine month low in September.

"Despite this improvement, input price inflation continued to present an ongoing challenge to firms, with the latest rise in input prices linked to high energy, oil and utility costs."

Coverage of previous months' UK construction PMI reports is available at www.supplymanagement.com/pmi















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