'Millstones' bear down on UK services

The UK services sector saw a modest rebound in growth following March’s snow disruptions.

The IHS Markit/CIPS UK Services Purchasing Managers’ Index rose slightly from March’s 20-month low of 51.7 to 52.8 in April. The neutral reading of 50 indicates neither expansion nor contraction.

Overall, growth was the second weakest since September 2016. Among the reasons behind this were subdued consumer willingness to spend and concerns over the country’s economic outlook, which held back spending by corporate clients. 

In addition, the rise in new business was the second weakest since August 2016, ahead only of March’s weather-related downturn. 

IHS Markit chief business economist Chris Williamson said: “The services survey adds to signs that the rate of economic growth remained disappointingly subdued at the start of the second quarter. The three PMI surveys collectively showed only a muted rebound in business activity after being disrupted by heavy snowfall in March, failing to regain February’s pace of growth to suggest that the underlying performance of the economy has continued to deteriorate.”

There was a marginal fall in backlogs of work, ending a three-month period of expansion, with some companies citing the completion of work that had been delayed by March’s snow disruption.

Employment saw the weakest upturn since March 2017, with recruitment challenged by higher payroll costs and tight labour market conditions.

Higher salary payments kept pushing up cost burdens across the services sector, with anecdotal evidence linking the rise in input costs to the increased national living wage and rising pension contributions. 

However, subdued demand trends did not hinder business confidence: the balance of companies expecting to see business activity rising over the year reached its highest level since January.

CIPS group customer relationship director Duncan Brock, referring to economic conditions and Brexit uncertainty, said: “These millstones continue to bear down on the sector’s performance but as business optimism has bounced back from last month’s nine-month low, there’s hope that the sector’s efforts with new product launches and competitive marketing will keep the wolf from the door.”

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