UK services sector slowdown 'leaves little to get excited about'

Will Green is news editor of Supply Management
3 September 2015

Growth in the UK services sector slumped in August to its slowest in more than two years.

The Markit/CIPS UK Services Purchasing Managers’ Index shrank to 55.6 in August, down on July’s reading of 57.4 and against the no-change position of 50.

The slowdown, the greatest since the second quarter of 2013, was primarily the result of a drop in new business, which increased at the slowest rate since April 2013.

However, firms raised headcounts at a faster rate than July, though slower than the average for the first half of 2015, and inflationary pressure on input costs eased further.

Backlogs of work increased at a weaker pace in August, though they have risen in almost every month since April 2013, and business expectations remained high, with almost half of firms predicting growth.

David Noble, group CEO, CIPS, said: “The services sector left little to get excited about as the growth rate of new business was reported as the lowest for 28 months and the rate of overall activity growth the softest for 27 months. That said, services output has now risen for 32 consecutive months, and backlogs continued to rise.

“Staffing levels were higher and included some apprenticeships when compared to last month’s disappointing results, but concerns around the reality of the costs of the living wage were highlighted by respondents in a sector reliant on constant, high-quality, trained staff.”

Chris Williamson, chief economist at Markit, said: “The services PMI came in well below even the most pessimistic of economists’ forecasts and follows disappointing news of a stagnation in the manufacturing sector earlier in the week.

Although construction industry growth remained resilient, the three PMI surveys collectively are pointing to the weakest monthly expansion since May 2013.

“While some policymakers may be concerned by the slowing pace of expansion and the unbalanced nature of growth, others will be reassured that the economy continues to grow at a reasonably robust pace by historical standards.”

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