Services sector margins under pressure

Will Green is news editor of Supply Management
3 May 2019

Margins in the UK services sector were put under pressure in April amid a sharp increase in cost burdens, according to the latest PMI.

The rate of input price inflation hit a three-month high, with greater operating expenses linked to fuel costs and a rise in the national living wage. Prices charged by service providers increased only moderately.

The IHS Markit/CIPS UK Services Purchasing Managers’ Index climbed to 50.4 in April, up on 48.9 in March and against the no-change reading of 50.

New business fell for the fourth consecutive month, mainly linked to subdued consumer and business spending, though new sales to overseas customers also softened.

Duncan Brock, group director at CIPS, said: “This is more bad news for a sector worn out by rising costs for fuel and salaries with inflation at the highest level since January. Firms anxious about remaining competitive in this shrinking market had limited scope in passing on costs to their customers so absorbed much of the hit themselves.

“Offsetting this financial burden, they placed tighter controls over company purses including recruitment with the third fall in job numbers in four months. Though this was more about not replacing staff than actively shedding jobs, this stagnation in job creation is a worrying development.”

Chris Williamson, chief business economist at IHS Markit, said: “The disappointing start to the second quarter follows a first quarter in which the average PMI reading was the lowest since late 2012 and indicative of the economy flatlining.

“Although business grew more optimistic about the outlook, linked in part to more favourable prospects amid the reduced threat of an imminent no-deal Brexit, forward-looking indicators such as order books and backlogs of work hint at a near-term sustained weakness of demand, which has already filtered through to a reduction of employment.”

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