Services sector dips into negative growth

Will Green is news editor of Supply Management
3 October 2019

The UK services sector slipped into contraction in September as firms shed jobs and new and outstanding business dropped, according to the latest PMI.

The IHS Markit/CIPS UK Services Purchasing Managers’ Index dipped to 49.5 in September, down on 50.6 in August and against the neutral 50 reading. It is only the fifth time in more than a decade that it has fallen below 50 into negative growth.

Firms reported postponed orders from clients due to Brexit uncertainty, with evidence that international clients had switched business to other markets amid increased concerns around no deal.

Jobs at service sector firms were cut for the first time in five months and at the fastest rate since August 2010. Workforces fell at 19% of survey respondents.

And business expectations weakened for the fourth month running, the most sustained slide in sentiment since the second half of 2015.

Average input prices rose sharply with firms mentioning rising costs around energy and fuel, salaries, food, and the weakness of sterling.

Duncan Brock, group director at CIPS, said: “There was no respite in the form of input costs which continued to rise relentlessly as fuel and food became more expensive along with wages as businesses made some hard decisions.

“Fewer firms were passing on costs to retain market share focusing on resources instead, and resulting in the biggest reduction in staffing levels since August 2010.”

Chris Williamson, chief business economist at IHS Markit, said the combined PMIs pointed to a “heightened risk of recession”.

“A trio of grim reports on the economy means that the vast service sector has now joined manufacturing and construction in decline,” he said.

“Only the collapse in confidence immediately following the 2016 referendum has seen a steeper overall deterioration in the economy during the past decade, but September’s decline is all the more ominous, being the result of an insidious weakening of demand over the past year rather than a sudden shock.”

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