06 February 2006 | Helen Gilbert
Confidence in the UK service sector is at a 10-month high despite a slight drop in the rate of business activity growth.
January's CIPS/RBS Purchasing Managers' Index (PMI), which measures the overall health of the service sector, recorded a reading of 57.0. That is compared to 57.9 in December and 55.8 in November.
Despite the figure being down on December's 20-month high, it demonstrates a robust increase in UK private sector service activity - an index above 50 indicates growth.
According to the report, the majority of companies cited an increase in new business as the major driver in activity. This was down to favourable economic conditions and a willingness among firms to commit to new contracts.
However, this increase put pressure on capacity. The volume of business outstanding increased in January for the 10th time in the past year with the business outstanding index recording 50.8, up from 50.2 in December.
New staff were recruited for the 13th successive month to support higher workloads. The seasonally adjusted employment index stood at 52, compared with 52.3 in December and 51.2 in November.
Input prices increased, largely due to higher wage costs and an increase in the cost of utilities such as electricity and gas. However, panellists said they responded to this by increasing output charges. The seasonally adjusted average prices charged index posted 52.6.
Nearly 57 per cent of the survey panel anticipate a rise in business activity from present levels in twelve months' time. The Business Expectations Index registered 75.1, up from 73.2 in December.
Roy Ayliffe, CIPS director of professional practice, said: "A healthy economic environment led to the hiring of more staff as clients were reportedly more willing to sign off new projects. Input costs continued to present service providers with a challenge and the rate of output cost inflation remained below that of input prices. However, overall positive growth meant that confidence in the sector increased to a 10-month high."
Growth in business activity in the Eurozone service sector reached a two-year peak in January. It posted 57, up marginally from 56.8 in December. Business activity has now risen for 31 months, with the rate of increase improving continually over the past five months.
In the US, the Institute of Supply Management recorded a non-manufacturing PMI of 56.8 for January. Although there was growth it happened at a slower rate compared with December when an overall index of 59.8 was recorded.
* Coverage of previous PMI reports is available at www.supplymanagement.com/pmi
* 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 manufacturing economy is available at www.ism.ws