UK services sector sees strongest growth for five months

5 September 2012

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5 September 2012 | Anna Reynolds

The Markit/CIPS UK Services PMI came in at 53.7 for August, its best reading since March, as companies saw a boost in new business.

The figure is an improvement on the 51.0 posted in July and signals 20 consecutive months of growth for the sector (where an index is above 50).

The report attributed higher activity to a combination of new contract wins, marketing and, in some cases, better weather. The volume of new work continued to increase as companies were able to convert pipeline business into hard contracts.

The survey showed a mixed response to the impact on business from the Olympics. Some reported positive outcomes, while other companies suggested the Games had hit growth either because of travel restrictions in and around London or business being put on hold.

Many service providers expanded their workforce, with staffing levels increasing for a ninth month in a row, although the rate was the slowest since February.

There was also a marked rise in overall operating costs, with price inflation accelerating to a four-month high.

While UK service providers remain hopeful of further increases in business over the coming 12 months, fears for the underlying strength of the economy meant confidence levels across the sector were low.

Chris Williamson, chief economist at Markit said:“The big question is whether theexpansion can be sustained. It is a concern that the upturn in activity was not matched by a similar rise in hiring.” 

CIPS CEO David Noble said: “Growth in August reflects in part a reaction to the temporary factors that impacted the industry in July and the overall economic picture remains incredibly challenging. Businesses have seen their profitability deteriorate over the summer due to increased costs. To protect margins, some have pushed up fees having implemented price freezes or discounting, which are no longer feasible.”

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