CIPS News


Services expansion slows, but remains strong

CIPS 3 June 2015

Growth rates for services output and new business weaken, but remain strong 

Markit/CIPS UK Services PMI®

Key Points:

  • Growth rates for services output and new business weaken, but remain strong
  • Election result reported to have reduced business uncertainty
  • Input price inflation accelerates to eight-month high 

The UK service sector continued to register strong expansion in May, according to the latest PMI® survey data from Markit and CIPS. The rates of growth in both total business activity and new work slowed to the weakest in 2015 so far, but nevertheless remained sharp overall and stronger than the long-run survey averages. Outstanding work continued to rise, despite further strong workforce growth, while firms reported lower business uncertainty following the result of the general election. Meanwhile, cost pressures reached an eight-month high, and firms increased their own charges having discounted in April. 

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 services output for the twenty-ninth successive month in May, posting 56.5. The latest figure signalled strong overall growth, albeit the weakest in five months. The decline in the Index from 59.5 in April was the steepest since August 2011, but it remained above its long-run trend level of 55.2. 

The same trend was evident for new business inflows at service providers, which rose for the twenty-ninth month running but at the weakest pace since last December. Inflows of new work remained stronger than the long-run survey average, however, and were sufficient to generate a further increase in the level of outstanding business in the sector. Anecdotal evidence from the latest survey linked higher activity to reduced business uncertainty resulting from the general election result. Firms also mentioned an ongoing general upturn in the economy, new products, successful marketing and a strong housing market as having supported growth.

Stronger sentiment following the election was also reported as a factor underpinning firms’ business expectations in May. The 12-month outlook improved slightly since April, and remained strong overall with just over half of all respondents forecasting growth, compared with just 7% predicting declines in activity. Service providers continued to expand workforces at a marked pace in May, despite a slight easing in the rate of job creation to a five-month low.

Input prices increased at the fastest rate in eight months in May, in a further rebound in inflation from January’s five-and-a-half year low. Firms linked greater cost pressures to salaries, fuel and some foodstuffs. Meanwhile, prices charged by service providers rose, having declined at the fastest rate in over three years in April.

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

“Momentum in the sector stalled in May, with the drop in the headline index the biggest fall for almost four years and likely to cause concern as services remains the UK’s largest driver of economic growth.

“However, the index still retained its position in positive territory and was higher than its long-term average, as survey respondents reported strong growth in new business for the twenty-ninth month running and continued to expand staffing levels.

“But, backlogs continued to rise regardless, as skilled individuals were in strong demand, and as firms increased their marketing and new product activity to meet future needs following optimistic business sentiment. 

“The effect of pre-election uncertainty was largely dissipated. The sector retained a good level of activity and faced slightly raised input prices for fuel and commodities, some of which were passed on to consumers as the threat of deflation receded somewhat.” 

The June Report on Services will be published on Friday 3rd July 2015 at 09:30 

-Ends- 

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