Unwillingness to spend sees services close to stagnation

Will Green is news editor of Supply Management
3 July 2019

Growth in the UK services sector edged “close to stagnation” in June against a backdrop of unwillingness to spend by clients and consumers, according to the latest PMI.

The IHS Markit/CIPS UK Services Purchasing Managers’ Index slipped to a three-month low of 50.2 in June, down on 51 in May and against the neutral reading of 50.

Subdued activity was often attributed to sluggish domestic economic conditions and greater risk aversion among clients amid ongoing Brexit uncertainty.

A lack of new work led to a drop in unfinished business for the ninth consecutive month, the longest period recorded since 2011-12.

Strong input price inflation was recorded in June, which was linked to higher transport costs and wage pressures, but prices charged by service providers at the second-slowest rate since June 2017.

Duncan Brock, group director at CIPS, said: “This unwillingness to spend and invest by clients and consumers resulted in service companies upping the ante to compete for dwindling business opportunities. With the softest rise in prices charged to customers in three months, firms hesitated to increase their own prices for fear of losing ground in the marketplace.”

Chris Williamson, chief business economist at IHS Markit, said: “One ray of hope came from a further rise in employment as firms continued to hire new staff despite the drop in output, but the resulting decline in productivity signalled was the largest in the survey’s 20-year history.

“Collectively, the PMI surveys indicate that the economy has slipped into contraction for the first time since July 2016, suffering the second-steepest fall in output since the global financial crisis in April 2009.”

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