CIPS News


Service sector growth continues to rebound

CIPS 3 December 2015

Business Activity Index rises for second month running to four-month high of 55.9 

 Markit/CIPS UK Services PMI®

Key Points: 

  • Business Activity Index rises for second month running to four-month high of 55.9
  • New business expansion also accelerates, but backlogs rise only marginally
  • Business expectations remain near two-and-a-half year low 

 UK service providers looked set to end 2015 on a positive note, according to the latest PMI® survey data from Markit and CIPS. Growth of activity in the sector continued to pick-up from September’s 29-month low, and was the fastest since July. New business growth also strengthened to a four-month high. That said, other indicators were less buoyant, with employment growth slowing and backlogs rising only marginally. Moreover, the longer-term outlook for business activity was little-changed from October’s two-and-a-half year low. Latest data also signalled that inflationary pressures remained relatively weak. 

The headline figure for the survey is the seasonally adjusted Markit/CIPS UK Services Business Activity Index, a single-figure measure designed to track changes in total UK services activity compared with one month previously. Readings above 50.0 signal growth of activity compared with the previous month, and below 50.0 contraction. 

The Business Activity Index signalled growth of service sector output in November, taking the current spell of expansion to one month short of three years. The Index rose for the second month running to 55.9, from 54.9 in October, signalling the fastest rate of growth since July. The average for the fourth quarter so far matches that seen over the third quarter as a whole (55.4). In comparison, the Index has trended at 55.2 since its inception in July 1996. 

Total activity was supported by a further rise in incoming new work in November. Matching the trend for output, the current sequence of new business growth now stretches to 35 months and the pace of expansion accelerated to a four-month high in the latest period. New contracts were linked to improving confidence, marketing efforts, new product launches and acquisitions. 

Although new business rose at a faster pace in November, the volume of work outstanding at service providers continued to grow only marginally, signalling a lack of pressure on operating capacity. This was despite a weaker rise in employment in the sector. Jobs rose at the slowest rate in three months, albeit one that remained historically strong overall.

Service providers remained optimistic, on average, that activity levels at their units would rise over the next 12 months. That said, the strength of sentiment was little-changed from October’s two-and-a-half year low.

November data signalled a further rise in average input prices paid by UK service sector companies. Firms mainly cited salary pressures, partly linked to the forthcoming National Living Wage. The rate of inflation edged up to a four-month high, but remained weaker than the long-run survey average. Meanwhile, charges levied by service providers continued to rise at only a fractional pace. 

David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply commented: 

“The services sector was at odds with the other sectors this month offering a positive contribution to the UK economy with the highest growth of new work and overall business activity since July this year, leaving September’s lows far behind. 

“Respondents were more willing to invest in marketing and new product launches, as optimism remained high, especially in the computing and IT sub-sector. Though growth in employment levels was maintained, the pace of hiring had slowed marginally, amidst concerns around higher wage bills and the continuing impact of the National Living Wage. 

“Levels of backlogged work grew only slightly, which didn’t tally with the concentration of incoming new work and signalling there may be some spare capacity that will prove to be useful in the coming months if the sector is to forge ahead.” 

Ends

The December Report on Services will be published on Wednesday January 6 2015 at 09:30 UK / UTC 

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