Services sector expands, but employment falls

3 October 2012

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3 October 2012 | Anna Reynolds

The Markit/CIPS UK Services Purchasing Managers’ Index recorded a figure of 52.2 last month, a slight drop from the 53.7 seen in August but still indicating expansion.

Despite ongoing growth in September, operating conditions were reported as being challenging, which may account for the slight dip from August’s figures. Market pressures continued to bite, with competition reportedly fierce and the underlying business climate still fragile.

Growth in new business was the highest since May, which has continued to boost the UK services sector. Evidence suggested increased market activity following a lull shortly after the Olympics.

A net fall in employment was recorded for the first time in 10 months, but companies were able to manage workloads with fewer staff. Companies chose not to replace employees, which was reflected in lower payroll numbers, the first contraction since last November.

Operating costs continued to rise, with a number of companies blaming higher fuel, energy and food costs. The hotels, restaurants and catering sector recorded the steepest input prices.

UK service providers remained optimistic of a further rise in activity over the year ahead and confidence rose to a four-month high, but this was still well below the average traditionally seen in September.

David Noble, CEO of CIPS, said: “Activity in the services sector continues to occupy positive territory, though growth levels remain below trend, signifying that there is still fragility. However, the sector has been bolstered by robust new business volumes, demonstrating that there is more traction in the sector.

“These figures therefore augur well as we round off the third quarter. With no Bank Holidays until Christmas and the Olympics finished, we now have a three-month clear run, without disruptions, to try and get a sense of where the sector – and the economy – really is.”

Chris Williamson, chief economist at Markit said: “The September service sector PMI adds evidence to suggest that the UK economy barely expanded in the third quarter.

“Employment has also suffered in response to the slowdown, with September seeing one of the steepest cuts to service sector staffing since 2009. Hopes are therefore pinned on the recent upturn in new orders being sufficiently strong and sustained to bring about improved growth of business activity and renewed hiring in coming months.”

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