UK services activity expands at slowest rate for 19 months

3 August 2012

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3 August 2012 | Adam Leach

Companies in the UK services sector experienced the slowest rate of expansion for more than a year and a half as input prices increased despite falling fuel costs.

The Markit/CIPS UK Services PMI for July reported a figure of 51.0, indicating growth in the sector but at a slower rate than June when the figure was 51.3.

Poor weather and some disruptions caused by the build up to the Olympics were identified as factors behind weak growth, along with continuing economic turmoil. The slight expansion was partly attributed to an increase in working days, following extra bank holidays in June and companies winning new contracts off the back of promotional work.

While incoming work increased above the rate of activity, companies were still able to reduce the backlog of outstanding work. Employment rose for the eighth month running. However, a tricky operating environment subdued client confidence and resulted in businesses taking a cautious approach to making business decisions.

Input prices continued to rise as suppliers were reported be passing on their cost increases, though businesses continued to discount. Business sentiment among respondents remained positive, though below the trend of recent months.

Paul Smith, senior economist at Markit, said: “Slower growth of activity is somewhat disappointing following the disruption of the Queen’s jubilee in June. Although anecdotal evidence suggests that a number of temporary factors remain in play – poor weather in the first half of the month and pre-Olympics disruption were reported in some quarters – companies continued to indicate that underlying demand remains fragile.”

CIPS CEO David Noble, said: “The operating environment remains as difficult as ever. Input prices continue to rise and competition is fierce, leading to reduced fees and pressure on margins. While the temporary influences may change, the broader economic environment remains downcast.”

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