UK services growth improves

5 October 2010

5 October 2010 | Lindsay Clark

Despite new business growing at its lowest rate in 15 months, the UK services sector posted stronger expansion in September compared with the previous month.

Today’s Markit/CIPS UK Services PMI shows that growth in the services sector picked up from August’s 16-month low of 51.3, posting an overall index score of 52.8. A score of 50 indicates no change.

Most concerning for procurement professionals was a significant increase in input cost pressures, which rose at a 57.0 seasonally adjusted index rate.

CIPS CEO David Noble said improvements in business confidence in the services sector might be temporary. “Underlying trepidation about new business prospects leads many to ‘sit on their hands’ when it comes to increasing investment.

“While some companies are expecting the UK economy to pick up in the next 12 months there are wide variations in sentiment. Sectors more susceptible to changes in discretionary consumer spend, such as the hotels and restaurants sector, were shown to be the least confident. These will need to see a significant boost in demand to shake off the current mood and insecurities over public spending cuts.”

The drop in new business growth was the most concerning aspect of the research, according to Chris Williamson, chief economist at survey compilers Markit. “New business growth slowed closer to stagnation and confidence for the year ahead remained at a level only reached at times of extreme stress. Unless trends in new business show an improvement soon, the lack of confidence is consistent with a downturn in business activity in the coming months.

“Anecdotal evidence from the survey reveals that inflows of new work and prospects for the year ahead have been hit by widespread worries that the recovery is losing steam, cancelled government contracts and the prospect of more cuts to come.”

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