Ash cloud blamed for slowdown in services growth

6 May 2010

6 May 2010 | Lindsay Clark

The UK services industry continues to grow, but at a reduced rate, according to the latest CIPS/Markit Purchasing Managers’ Index for services.

The headline business activity index showed sustained growth in April, at 55.3. However, the rate had dropped from 56.5 in March. A score of 50 indicates no change from the previous month.

The second month of slowing growth could be a result of business disruption caused by the volcanic ash cloud, particularly in the transport, storage and communications sector.

Paul Smith, senior economist at Markit, said: “The effect of the volcano alone was estimated to have taken around 0.9 points off the unadjusted headline index.”

According to respondents, the volcanic ash cloud also undermined new business gains in April, while there were also reports that the general election has led to uncertainty among some clients. Nonetheless, there were many reports that underlying conditions had improved, creating a generally favourable environment.

But despite easing to a three-month low, overall new business growth was solid, the survey found.

David Noble, chief executive of CIPS, said: “A slowdown in services sector growth shows that it wasn’t just planes that were grounded by the volcanic ash in April. Business operations and supply chains were heavily impacted by the shutdown of air travel, which led to a marked drop in growth. However, just like the impact of the heavy snow in January, this is only likely to be a temporary blip and it is very encouraging to see the sector has grown so strongly this year despite these setbacks as well as the uncertainty surrounding the election.”

Smith said that the expansion was healthy, especially for business services.

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