Services sector growth 'may be close to peak' amid capacity concerns

Will Green is news editor of Supply Management
3 September 2014

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3 September 2014 | Will Green

Business activity in the UK services sector increased at the fastest pace in almost a year during August, but growth “may be close to peaking” according to a survey of buyers.

The Markit/CIPS UK Services Purchasing Managers’ Index recorded 60.5 in August, up on 59.1 in July, and the sharpest monthly improvement since October 2013.

There was a rise in volumes of new business, with backlogs of work increasing but at the slowest rate for three months, and there were reports from panellists of insufficient staff numbers.

More than 45 per cent of the survey panel predicted a rise in activity but there was some concern over the strength of new work pipelines, and this led to a fall in overall confidence to a 15-month low.

Pricing power remained subdued as competitive pressures persisted and average output charges were little changed, while input cost rises were the weakest since May 2013, amid reports of lower energy and fuel prices.

David Noble, group CEO, CIPS, said “reductions in confidence combined with capacity pressures mean that growth may be close to peaking”.

“The outlook is not as bright as previous months, as a mixed bag of concerns, principally over how robust the business pipeline will continue to be, resulted in confidence declining to a 15-month low," he said.

“The service sector looked increasingly competitive in August with businesses unable to push higher costs onto customers. Alongside this pressure, wage inflation could also accelerate should labour shortages persist. As things stand, a number of questions remain about where the sector will be at the end of the year.”

Chris Williamson, chief economist at Markit, said the latest PMI surveys “indicate the economy grew at the fastest rate since last November”.

“The worry is that growth remains too dependent on the domestic economy, raising the risk that higher interest rates will derail the upturn. Any hopes of a rebalancing towards exports have been dealt a blow by the escalating Ukraine crisis.

“Dovish policy makers will worry that the Ukraine crisis will also filter through to a significant slowdown in services and construction. Some impact is already evident, with growth of new orders and employment moderating in all three sectors in August.”

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