Services industry grows while prices fall

7 April 2010

7 April 2010 | Lindsay Clark

Prices charged by the UK services sector have fallen for the first time this year, according to the CIPS/Markit Services Purchasing Managers’ Index (PMI) out today.

Following growth in the first two months of 2010, prices charged showed a slight weakening, recording 49.9 on the index – where 50 indicates no change. Input prices were also rising, the survey showed.

Overall, the services PMI demonstrated growth, albeit at a weaker rate than the previous month. It came in at 56.5 for March, against its performance of 58.4 in February.

CIPS chief executive David Noble, said: “Suppliers to the sector have now begun to increase some of their prices. However, strong competition means businesses are not able to pass these costs onto customers and so are having to absorb them themselves.”

The fall in output prices is set against increase in employment in the sector for the first time in two years.

Noble added: “It is hugely encouraging to see the number of jobs in the sector increase for the first time in nearly two years. Business conditions have been recovering for a few months now, but most employers have been wary of taking on new staff until sure this is a genuine and sustainable recovery. While the employment increase was only marginal, we do seem to have reached a tipping point which hopefully means we will see continued job creation throughout the year.”

However, purchasing managers in smaller service businesses have reported that their firms are still suffering from the effects of the recession and continue to lay off staff, despite large and medium-sized companies expanding their payroll, Noble said. “It won’t be until we see these smaller businesses really start to recover that we can say the services sector is returning to full health.”

Paul Smith, senior economist at Markit Economics, said: “With positive manufacturing and construction PMI data indicating that recovery is increasingly broad-based, the first quarter’s economic growth should at the very least match the pace of the fourth quarter.”

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