Markit/CIPS UK Services PMI® shows UK service sector growth strengthens
- Activity and new business both rise at sharper rate
- Employment continues to increase as capacity constraints persist
- Higher wage bills push up operating expenses, but lower fuel prices limit cost inflation
November’s survey of the UK service sector indicated a strengthening of activity growth amid reports of firm demand and rising volumes of new business. Capacity subsequently remained under pressure, leading to a further increase in levels of work outstanding, and companies responded by adding to their payroll numbers.
The latest survey also indicated that higher wage bills were driving up overall operating expenses, although these were offset to a degree by lower fuel costs. Output charges were unchanged as competitive pressures restricted pricing power.
The headline seasonally adjusted Business Activity Index remained comfortably above the 50.0 no-change mark for a twenty-third successive month in October to signal further growth of activity. Moreover, a rise in the index to 58.6, from 56.2 in October, pointed to a marked and accelerated rate of expansion that was well above the survey’s historical average.
Supporting the latest increase in activity was another rise in new business volumes. Panellists commented that demand was high, and they had been able to secure contracts from both new and existing clients. Advertising and marketing drives provided further support to sales efforts, and overall new business growth strengthened since October with over 28% of panellists recording a rise in new work.
A number of panellists indicated difficulties in coping with higher workloads during November as signalled by a further increase in levels of business outstanding. Backlogs have now risen for twenty months in succession.
Companies sought to alleviate capacity constraints by adding to their payroll numbers at a quicker pace. Latest data showed that total service sector employment rose to the strongest degree since July, and growth has now been registered in each month since January 2013.
An elevated rate of employment growth in November also reflected positive company expansion plans. With this in mind, business confidence in the sector remained high, with over 48% of the survey panel forecasting an increase in activity from present levels in 12 months’ time. Panellists signalled positive forecasts for market demand, and are expecting to raise investment both in staff numbers and offered services.
Finally, on the price front, companies reported that higher wage bills were a key driver of another solid increase in their average operating costs during November. A fall in fuel prices, however, helped to push inflation down to a three-month low and also enabled firms to maintain their own pricing polices in what remained a competitive marketplace. Latest data showed that average output charges were unchanged since October.
David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply:“The slight dip in last month’s activity has done little to dispel the current wave of optimism in the services sector as procurement and supply chain professionals report firm demand and rising volumes of work.
“Where other sectors have succumbed to a minor slowdown, services is leading the way confidently, with investments and marketing activity supporting improving productivity. Though suppliers are under some pressure with capacity constraints, these have resulted in a rise in employment levels to tackle backlogs alongside incoming new business. Higher staff costs are being tempered by lower fuel costs, keeping inflation low as competition and good procurement keeps output prices down.
“Half of the survey’s respondents reported optimism for the sector as activity expanded for the twenty-third consecutive month, which is a good sign for the end of this year and the beginning of 2015."