CIPS News


Services growth sustained at marked pace

CIPS 3 July 2015

Backlogs of work fall for first time since March 2013 

Markit/CIPS UK Services PMI®

Key Points:

  • Service sector activity rises at sharper rate...
  • ...but growth rates for new business and employment ease slightly
  • Backlogs of work fall for first time since March 2013 

 

Latest PMI® survey data from Markit and CIPS highlighted further strong improvements in the UK service sector during June. Activity rose more sharply, following a temporary lull in May linked to the recent election. Data for new business and employment also remained strong, leading to further optimism regarding prospects for future growth. However, new order growth eased slightly, contributing to the first monthly decline in backlogs of work since March 2013. Meanwhile, input costs and output charges continued to increase. 

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.

At 58.5, the Business Activity Index was consistent with marked and accelerated growth in June, having posted a five-month low of 56.5 during May. The latest reading highlighted a post-election rebound in activity, and meant that the second quarter of 2015 was the strongest on average since Q3 2014.

Data showed that activity growth was supported by another robust expansion in new work inflows during June. Although easing marginally to the weakest so far this year, the rate of increase remained faster than the series average. 

There were reports that new product launches and successful commercial initiatives had helped to strengthen demand conditions, leading to the latest rise in new work. Moreover, some panellists also mentioned new client wins from abroad, stemming from an expected appreciation of the pound, particularly against the euro. 

Stronger order books contributed to further solid jobs growth at UK services firms during June. That said, the rate of job creation eased in line with new business to a six-month low.

Meanwhile, the slowdown in new order growth resulted in spare capacity at UK service providers, as signalled by the first monthly reduction in work outstanding since March 2013. Anecdotal evidence linked the decline to uncertainty in core sales markets.

The fall in backlogs had little impact on business sentiment, however. Services companies remain highly optimistic towards the 12-month outlook for activity, citing new contract wins and post-election improvements as the key contributing factors. 

On the price front, input costs rose solidly, with the rate of inflation little-changed from May’s eight-month high. Firms mentioned higher wages and increased fuel costs in the latest period. In contrast, average tariffs were raised only modestly, amid reports that competitive pressures had weighed on selling prices. 

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

“The service sector continued on its robust growth path with an accelerated expansion in activity. The latest rise was stronger than the survey average, supported by further growth of new work and new staff. 

“Optimism was in plentiful supply as the pre-election hiatus became a distant memory. Though the pace of new contract wins was marginally slower, this gave the sector the opportunity and capacity to reduce backlogs – the first such drop since March 2013.

“There was also sufficient confidence to develop new products and opportunities, though a slowdown in key markets in the Eurozone contributed to some hesitancy in job creation, which, though still strong, was at its slowest pace for six months.

“Despite input costs rising markedly, prices were up only marginally as competition ramped up to halt further rises.” 

Ends

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