Services sector buyers welcome lower input prices

7 June 2012

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7 June 2012 | Adam Leach

The UK services sector experienced its seventeenth consecutive month of growth in May, expanding at the same pace as in April.

The Markit/CIPS UK Services Purchasing Managers’ Index (PMI) reported a figure of 53.3 in May, which matches the figure from the last PMI report in April. A figure above 50 indicates expansion. The amount of new business wins rose to a four-month high and there was also a rise in employment as companies took on new workers to deal with high workloads.

There was a reduction in output charges in May as companies reported continued pressure from customers to offer discounts. But pricing pressure on companies was partly eased as the rate of input cost inflation rose at the slowest rate for 31 months. Respondents said where increases were found, it was a result of suppliers passing on their own higher charges.

But the outlook among buyers for the sector was gloomy, with just 50 per cent of respondents signaling they expect to have a positive year. Citing public sector cuts and the Eurozone debt crisis as being of particular concern, panelists recorded the lowest level of confidence since December.

Paul Smith, senior economist at Markit, said: “Taking a look at the trend performance of the sector, it seems clear now that the PMI has settled in a range that is a step or two down from what we used to see prior to the financial crisis, providing signs that the long-term growth rate may be shifting lower.”

“Of course, exceptional circumstances prevail, with the Eurozone debt crisis continuing to undermine service sector confidence, which slipped to a five-month low in May.”

David Noble, CEO at CIPS, said: “It’s a relief to see the UK’s services sector posting steady growth for the seventeenth consecutive month, but the twists and turns of the Eurozone crisis and the potential tumble in domestic demand post-Olympics is a source of increased trepidation.”

“The performance of the sector remained modest in May helped by a fall in input price inflation and new business wins, which enabled some companies to take on more staff to cope with higher levels of activity.”

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