CIPS News


Service sector remains on strong growth path

CIPS 5 August 2015

Activity growth eases slightly, but remains marked

Markit/CIPS UK Services PMI®

 Key Points:

  • Activity growth eases slightly, but remains marked
  • Employment rises at weakest rate since March 2014
  • New business growth strengthens, but longer-term outlook eases to five-month low 

Latest PMI® survey data from Markit and CIPS continued to signal strong growth in the dominant UK services sector moving into the second half of 2015. Growth of business activity remained sharp, despite easing slightly since June, and was in line with the trend pace over the past two-and-a-half years of continuous expansion. In contrast, new business rose at a faster rate, and growth of outstanding business resumed following June’s decline. The current sequence of job creation was maintained, albeit at a slower rate. Cost pressures remained historically weak, while firms raised their own prices at the strongest rate in five months. 

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 fell to 57.4 in July, from 58.5 in June. That signalled growth of activity for the thirty-first successive month, and at a rate that was broadly in line with the strong average over this sequence. That said, it was slightly weaker than the trends shown for both the first (57.6) and second (58.2) quarters of 2015.

Survey respondents linked higher activity to new contracts – some of which were unexpected – new product launches, acquisitions, organic business growth and effective marketing campaigns. In contrast to the trend shown for total activity, new business expansion accelerated in July to the highest since April. The pace of growth was marked, and broadly in line with the average for 2015 so far.

Stronger inflows of new business, coupled with a slight easing in growth of activity, led to a rise in outstanding business at service sector companies. This marked a resumption of the recent trend of rising backlogs that stretched back to April 2013.

UK service providers continued to expand their workforces on average in July with 18% of firms reporting growth, double the proportion that cut staff during the month. The rate of job creation was the slowest since March 2014, but remained historically strong. Just under half of firms expected business growth over the next 12 months, versus only 7% that predicted declines. That said, the overall degree of sentiment eased to a five-month low.

Input prices rose in July, linked to salaries, IT, regulatory costs and rents. That said, the rate of inflation eased to a three-month low, and remained weaker than the long-run survey average. In contrast, prices charged for services increased at the strongest rate since February, and one that was in line with the historic survey trend.

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

“Though dislodged from last month, the sector’s growth continued to operate on solid foundations and in an optimistic environment. 

“Respondents reported a few surprises in the form of unexpected new business wins, which contributed to increased backlogs. Overall, activity has continued to rise for 31 months and though the minor easing in growth may raise questions around the continued strength of recovery, recent revised GDP figures for the UK economy confirm the sector’s solidity along with half of the survey’s respondents who were optimistic for the coming months.

“Staffing growth was still robust compared to the long-term average, though the weakest in over a year. Output charges persisted in their upward trend, as firms were confident of the marketplace’s capacity to absorb price rises and amid concerns that rising salaries were reducing margins.”

Ends 

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