UK services sector's strong growth puts capacity under pressure

Will Green is news editor of Supply Management
3 December 2014

The UK services sector showed strong growth in November, with the rate of expansion well above the historical average and putting capacity under pressure.

The Markit/CIPS UK Services Purchasing Managers’ Index rose to 58.6 in November, compared to 56.2 in October and against a baseline of 50 that indicates no change, with firms reporting increases in levels of work outstanding.

Companies responded by adding to payroll numbers and, coupled with higher wages, operating expenses have been driven upwards, though these were offset by lower fuel costs.

Respondents reported high demand, with contracts secured with both new and existing clients, but backlogs have risen for 20 months in succession.

Almost half of the survey panel predicted an increase in activity from present levels in 12 months’ time, but the data showed average output charges were unchanged since October.

Chris Williamson, chief economist at Markit, said: “Employment continued to rise strongly in services as well as manufacturing and construction, meaning the jobless rate looks set to fall further from the current level of 6 per cent. There are also signs that wage growth is picking up alongside the improving labour market, which should help boost household incomes and consumer spending.”

David Noble, group CEO, CIPS, said: “Where other sectors have succumbed to a minor slowdown, services are leading the way confidently, with investments and marketing activity supporting improving productivity.

“Higher staff costs are being tempered by lower fuel costs, keeping inflation low as competition and good procurement keeps output prices down.”

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