UK services growth hits 10-month high

Will Green is news editor of Supply Management
5 December 2016

Growth in the UK services sector hit a 10-month high in November but business confidence has dipped.

The Markit/CIPS UK Services Purchasing Managers’ Index climbed to 55.2, compared to 54.5 in October and the fastest expansion since January. A reading of 50 indicates neither contraction nor expansion.

Growth was driven by a solid increase in new work and the weak pound was reported to be a factor boosting international demand, together with marketing efforts and new products. The volume of outstanding business increased for the third time in four months and the rate of growth in backlogs was the fastest since July 2015.

However, long-term business confidence weakened for the first time since July, attributed to ongoing political uncertainty and inflationary pressures.

Input price inflation remained sharp in November despite easing for the first time since May, and there was a similar trend for prices charged by service providers.

David Noble, group CEO, CIPS, said: “The ongoing battle with currency fluctuations, a weak pound and the impact of inflation will continue to undermine company profits.

“Rising prices are already being passed on to consumers and this is likely to accelerate in 2017 as the full import costs of higher fuel, food, travel and labour costs make their way down the supply chain.

“If consumers respond by slowing their spending, the sector will have to upscale their efforts to sustain the current momentum of growth.”

Chris Williamson, chief business economist at IHS Markit, said: “The sustained improvement in the business surveys and sharp rise in prices suggest that the odds will continue to shift away from the Bank of England adding more stimulus.

“However, any policy tightening still seems a long way off given the uncertainty facing the UK economy. The service sector PMI data showed that business optimism about the coming year dipped in November, to the second-lowest in four years.”

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