Services sector sees only 'small ray of sunshine'

5 October 2011

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5 October 2011 | Adam Leach

A rise in new business and increasing demand helped to bring about growth in the UK services sector during September.

The Markit/CIPS UK Services Purchasing Managers’ Index reported a score of 52.9 for the month indicating a solid rise in activity in the sector since August when it hit an eight-month low. The improved performance was attributed to more new business and an increase in overall demand.

Purchasing managers surveyed reported that new orders had risen from a low base and that there had been a concerted effort to win new orders amid an uncertain environment.

David Noble, CEO at CIPS, said: “A small ray of sunshine for the services sector as stronger demand and a pick-up in new business means we are moving away from August’s darker performance.”

Despite the rise in overall activity, business confidence across the sector continued to drop and hit a 30-month low. Employment activity also continued to decline with companies generally reluctant to take on new staff. Despite input prices continuing to rise, output prices remained unchanged, indicating an inability or reluctance to pass the rises onto customers.

Noble, said: “Businesses are battling against tough competition, and input costs are continuing to rise at strong rates. Those that are more positive and are predicting activity to increase are looking to the 2012 Olympics for a boost, but it may take more than this for real, sustained growth.”

Chris Williamson, chief economist at Markit, said: “Activity bounced back from August’s eight-month low, but August had been disrupted by riots in some cases, and many firms also reported that the ongoing expansion was only achieved by eating further into backlogs of work. This is clearly not sustainable and growth of new business will need to pick up in the coming months to prevent a downturn in both business activity and employment in the final quarter of 2011.”

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