UK services: ‘growth down to 17-month low’

Rebecca Ellinor Tyler is former editor of Supply Management
5 November 2014

Procurement professionals report they are “tiptoeing through a time of uncertainty, as suppliers demonstrate stronger bargaining power,” said David Noble.

The group CEO of CIPS was responding to the results of today’s Purchasing Managers’ Index report on the UK services sector. The seasonally adjusted index posted 56.2 in October (where a figure above 50 indicates growth), a weaker performance than the 58.7 recorded in September.

The results of the latest survey found that while there had been growth in October it was at its slowest rate for 17 months amid reports of some market uncertainty creeping into client decision-making.

The rate of new business also eased and business sentiment weakened. And although new work continued to rise sharply, it did so at its slowest pace for five months. Nonetheless, companies recruited additional staff as capacity remained under some pressure - highlighted by a further increase in work outstanding.

Noble said: “It appears to be a slowdown month as the sector comes off the boil, challenged by capacity constraints, increased backlogs and a slight reduction in new business growth.

“After the scramble to regain former heights seen in the past year comes a period of reflection and re-balance while positive sentiment remains high and levels of staffing are increased. Coupled with the rise in employment levels comes increased input prices with higher wage demands and more competition.”

Chris Williamson, chief economist at Markit, which compiles the survey, said: “Slower service sector growth knocks the prospect of interest rate hikes firmly on the head, adding to an increasingly downbeat flow of economic data in recent weeks which has thrown a cloud of uncertainty over the outlook.”

The results of the UK services sector follow that of construction and manufacturing, to which Williamson added: “A sharp easing of service sector growth to the weakest since May 2013 comes on the heels of data showing construction growth sliding to a five-month low and the goods-producing sector shifting down a gear since earlier in the year.

“After GDP growth slowed to 0.7 per cent in the third quarter, a 0.5 per cent expansion is currently being signalled by the surveys for the fourth quarter. However, with inflows of work rising across all three sectors at the slowest rate for 16 months, there is a risk that economic growth could weaken further.

“The surveys also point to lower inflation in coming months: average prices charged for goods and services fell, albeit only slightly, for the first time since July 2012. The surveys therefore suggest the Bank of England will wait to gauge the full extent of the slowdown before making any decisions on policy.”

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