Services sector optimism hits eight-month high

Will Green is news editor of Supply Management
5 June 2019

Growth in the UK services sector edged upwards in May as business optimism rose to an eight-month high.

The IHS Markit/CIPS UK Services Purchasing Managers’ Index rose to 51 in May, up on 50.4 in April and against the no-change reading of 50.

The increase was supported by a modest rebound in new business, for the first time in five months, and the fastest upturn in staffing levels since November 2018.

Higher staff wages and transport costs contributed to a strong rise in input prices, though inflationary pressures eased to a 12-month low. Stronger demand and efforts to protect margins led to the sharpest rise in prices charged by service providers so far this year.

Firms reported cautious optimism about the outlook for customer demand and business expansion plans, though political uncertainty remained a key factor holding back growth expectations for the year ahead.

Duncan Brock, group director at CIPS, said: “All in all, the sector is still suffering a potent cocktail of depressed demand and uncertainty. Even the biggest rise in optimism since September 2018 and more staff hires are unlikely to be enough for the sector to put in an average performance in the coming months let alone open the floodgates to pre-referendum rates of business expansion.”

Chris Williamson, chief business economist at IHS Markit, said: “Although service sector business activity gained a little momentum in May, with growth reaching a three-month high, the pace of expansion remained disappointingly muted and failed to offset a marked deterioration in manufacturing performance and a fall in output of the construction industry during the month.

“As a result, the PMI surveys collectively indicated that the UK economy remained close to stagnation midway through the second quarter as a result, registering one of the weakest performances since 2012.”

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