Positive signs in UK services sector

2 June 2009

03 June 2009 | Martha McKenzie-Minifie

The UK services sector has "bounced back" quicker than experts expected, recording growth in the latest Purchasing Managers' Index for the first time since April last year.

The CIPS/Markit Business Activity Index - in which a figure below 50 represents contraction - recorded 51.7 last month, up from 48.7 in April. In May last year it was 49.8.

The monthly gain was the fifth largest in the survey's history, with May being the sixth consecutive month in which the index rose.

Roy Ayliffe, CIPS director of professional practice, said the sector bounced back "much quicker than expected" and demonstrated it was "the engine of the modern economy".

He added: "Against most economic predictions, May's PMI data suggests that the UK economy may come out of recession much sooner than was originally thought with construction, manufacturing and service sectors all showing significant improvement. "However, it's far too soon to crack open the champagne. Against a backdrop of ongoing price discounting and historically steep job shedding, there are risks that the recent improvements in service sector performance will not be sustainable."

The rise in business activity was supported by an increase in new orders, which also rose for the first time for 13 months, the report found. New business recorded 51.8 last month, up from 48.2 in April. In May last year it was 48.

Discounting helped to support sales growth. Service providers lowered their average output prices for the seventh successive month and at a sharper rate than in April, with companies reporting competitive pressures as a key factor.

Input costs continued to rise, but at a "weak" pace. Higher import prices and increased fuel costs were mentioned by those firms that reported inflation.

SMjun2009

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