CIPS News


Sharp growth sustained at start of 2015

CIPS 4 February 2015

Employment rises at near-survey record pace

Markit/CIPS UK Services PMI®

Sharp growth sustained at start of 2015

- Activity and new business both register stronger rises in January

- Employment rises at near-survey record pace

- Prices pressures dissipate

The UK service sector started 2015 in a strong fashion as activity and new business both increased at accelerated and above survey average rates. Companies were suitably encouraged by these trends to hire additional staff at the joint second-fastest rate in the survey history, using their additional capacity to try and clear backlogs and prepare for further business expansion in the coming months.

On the price front, average operating expenses rose at the slowest rate in over five-and-a-half years as lower fuel costs partially offset an increase in salaries/wages. Competitive pressures continued to restrict output price inflation, which was marginal in January.

The headline Business Activity Index remained well above the 50.0 no-change mark during the latest survey period, posting 57.2 in January compared to 55.8 in December. Growth has now been recorded for 25 months in succession, and panellists attributed the latest expansion to the start-up of new projects, higher marketing activity and rising levels of new business.

Indeed, new business received by UK service sector companies increased at a marked and accelerated pace in January. Nearly 30% of the survey panel recorded a rise in new work, with companies commenting that demand was strong in line with a positive business environment.

As incoming new business rose, service sector companies faced further pressure on their capacity as highlighted by another increase in volumes of work outstanding.

Backlogs have now risen consecutively for 22 months, and some panellists blamed a lack of staff at their units as a reason for further backlog growth. The response for a number of firms was to recruit additional staff, and this helped propel the rate of employment growth to the joint second-highest in the survey history (surpassed only by June 2014). As well as helping to meet higher current business requirements, a number of firms took on additional staff in line with positive projections for growth of activity.

Meanwhile, input price inflation eased to the lowest since June 2009 during January. There were reports of higher salaries being paid, but these were offset to a degree by a reduction in fuel and transportation expenses. Output price inflation weakened to a marginal pace despite some firms reportedly being willing to test the price sensitivity of the market at a time when demand was improving.

Finally, business confidence remained steady, with nearly 50% of the survey panel forecasting an increase in activity from present levels in 12 months’ time. Many companies highlighted positive business expansion plans for the coming year.

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

“The dominant sector in the UK continues to lead the way with strong growth and robust activity at the start of the year, now for 25 months in succession, and at a level which shows confidence for the coming months.

“The survey offers positive news around employment levels, with procurement and supply management professionals indicating the joint-second highest rise in over 18 years of data collection. Staff recruitment levels also reflected business optimism for the future and not just for the fulfilment of backlogs and new orders arriving, experienced by a third of respondents.

“Some firms are also offering higher salaries for the right candidates to counteract the skills shortages experienced by some, as the dangers of increasing backlogs are still ever-present if firms are unable to recruit the right people, at the right time.

“With a sharp drop in oil prices still having an effect on overall input prices, this looks to be a very happy new year for the services sector and a boost for the UK economy.”

 

The February Report on Services will be published on Wednesday 4th March 2015 at 09:30

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