CIPS News


Services growth picks up in October

CIPS 4 November 2015

Growth rate strengthens for first time in four months, but remains relatively subdued 

Markit/CIPS UK Services PMI®

Key Points:

  • Growth rate strengthens for first time in four months, but remains relatively subdued
  • New business expansion unchanged from September’s 29-month low
  • Employment rises at fastest pace since May 

 UK service providers reported a slightly faster overall rise in business activity and stronger job creation in October, according to the latest PMI® survey data from Markit and CIPS. That said, the pace of expansion in output was still the second-weakest since May 2013, and new business growth failed to accelerate from September’s 29-month low. Moreover, the 12-month outlook for activity was the weakest in two-and-a-half years. Input price inflation slowed to one of the weakest rates of the past six years, and charges levied by service providers rose only marginally. 

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 remained above 50.0 in October, signalling an extension of the current sequence of output growth to 34 months. The Index rose for the first time since June, to 54.9 from 53.3 in September. The latest figure was broadly in line with the long-run survey average of 55.2, and indicative of a strong overall rise in business activity at service providers. That said,the rate of expansion was still the second-weakest since May 2013.

In line with the trend for total activity, the volume of new business received by UK service providers rose for the thirty-fourth consecutive month in October. Firms reported growth from both existing and new customers, successful marketing campaigns and improving business confidence. The rate of expansion broadly matched the strong historic series average, but was nonetheless unchanged from September’s 29-month low. 

Growth of new work was sufficiently strong to generate a further rise in outstanding business in October. That said, the rate of backlog accumulation remained weak.

Service sector employment rose in October, continuing the trend shown since January 2013. Moreover, the rate of job creation strengthened to a five-month high, and remained faster than the long-run survey average. 
Business expectations remained firmly positive in October, but softened for the sixth time in seven months to the weakest since April 2013.

Overall cost pressures in the service sector economy remained relatively subdued in October. Input price inflation slowed for the fourth time in five months, and was the joint-second lowest since September 2009. Where firms reported higher input costs, wages and salaries were most commonly cited. Meanwhile, prices charged for services continued to rise only marginally. 

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

“Good news for jobseekers and those looking for a pay rise in the service sector this month as a rise in the headline index signalled faster growth, albeit at more a muted pace than in manufacturing and construction.

“The rate of staffing growth rose to a five-month high and was faster than the average over the 19- year survey history. Respondents cited some difficulty in finding skilled staff so were willing to offer higher salaries to good candidates. The requirements of the Living Wage also contributed to higher input charges while material prices remained subdued.

“Backlogs rose slightly although growth of new business was disappointing and dampened future business sentiment, which was the weakest for two-and-a-half years and fell for the fifth consecutive month.

“Government spending reviews and this mixed picture of highs and lows makes it difficult to predict whether a searing rise in economic improvement is likely.” 

Ends

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