UK services activity grows but rate slows

5 March 2012

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5 March 2012 | Adam Leach

Activity in the UK services sector continued to increase in February, but the rate of growth eased to its lowest in three months.

The Markit/CIPS UK Services PMI, published today, recorded 53.8 for February. While this figure indicates growth, the speed of expansion in the sector slowed compared with January’s figure of 56. The monthly report said the slower growth rate was partly the result of discounting being used to drive sales. This is done to stimulate demand and is in response to increased competition and customer demands for lower prices.

Despite the easing in the growth rate, future prospects appeared to be improving as employment increased and expectations for the next 12 months hit the highest level for a year. New business wins, in line with mildly improving economic support, helped improve confidence, although respondents remarked that conditions remain challenging and discounts occurred despite the fact that input prices rose, which increased pressure on profit margins.

Markit chief economist Chris Williamson said: “Despite seeing some loss of momentum in February, the services sector continued to grow at a robust pace, adding to signs that a double-dip recession will be avoided. So far this quarter, the sector has notched up its best performance since the spring of 2010, when the economy was rebounding strongly from the recession.”

CIPS CEO David Noble said: “The biggest challenge for businesses in the current environment is to protect margins in a market where customers have the upper hand on pricing. Although input cost rises continue to ease, the pressure to discount and undercut the competition is acute.”

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