CIPS News


UK services posts further solid rise in output

CIPS 3 February 2016

The rate of job creation picked up from December’s five-month low in January, and was strong overall.

UK services posts further solid rise in output

- Growth supported by stronger inflows of new business, but backlogs fall

- Weakest 12-month outlook in three years  

- Employment growth at three-month high

Summary: The UK’s dominant service sector registered a further solid rate of expansion in January, according to the latest PMI® survey data from Markit and CIPS. Growth of total business activity was little-changed from December, and new business rose at the sharpest rate since last July. Service providers raised employment at the fastest pace since last October. That said, output growth was weaker than the trend rates achieved in 2013, 2014 and 2015. Moreover, the longer-term outlook for business activity hit a three-year low.

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 current period of rising UK service sector output was extended to over three years in January, as signalled by the Business Activity Index remaining above the no-change mark of 50.0. The index was little-changed from December’s 55.5, at 55.6, and broadly in line with the average over the second half of 2015. Growth in January was slightly stronger than the long-run survey average, but weaker than the strength achieved in 2013 (56.9), 2014 (58.2) and 2015 (56.7).

Mirroring the trend for activity, new business rose for the thirty-seventh consecutive month in January. The rate of expansion strengthened to a six-month high, and remained stronger than the average pace since the survey started in July 1996. That said, in line with the pattern over the last six months, new work rose more slowly than the average over the current sequence of growth. The rate of job creation picked up from December’s five-month low in January, and was strong overall. This contributed to an overall decline in outstanding business during the month, only the second contraction in nearly three years. That said, some firms commented that completed projects had not been replaced with new work. The 12-month outlook for the service sector remained positive in January, but the strength of sentiment ebbed further to the weakest in three years. Firms mentioned sales campaigns, new products and new business lines as reasons for optimism, but there were also concerns around a global economic slowdown and heightened uncertainty at the start of 2016. Inflationary pressures remained historically weak in January. The rate at which average input prices rose was among the weakest registered over the past six years, despite reports of salary pressures. Charges levied by service providers rose at the fastest rate in six months, albeit one that remained historically subdued.

David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply: “The good news is that the most dominant UK sector continued to expand output at a steady if uninspiring pace. January’s rise in activity was the strongest for six months and this current period of growth lasting almost three years is the secondlongest since the survey began. “Staffing growth remained relatively robust, which contributed to falling backlogs for only the second time in the last three years. Some respondents cited concerns that new work was not filtering through quickly enough to replace work finished. “Worries included slowing global economic growth, a weak housing market, stock market difficulties and UK policies over national and living wages contributing to rising wage bills. All these impacted on business optimism - the weakest for three years. “There are concerns that this period of statis may continue for some time yet which means that any imminent rises in UK interest rates are more likely to be delayed.”

Chris Williamson, Chief Economist at Markit, which compiles the survey: “The economy defied expectations and picked up speed in January, but cracks continue to appear in the country’s resilience to the various headwinds. “The three PMI surveys for January collectively point to a slight upturn in the rate of economic growth, consistent with GDP rising at a quarterly rate of 0.6% in the first quarter, up from 0.5% in the fourth quarter, if current levels are sustained. However, order book backlogs are already falling at the fastest rate for almost three years and companies have scaled back their hiring in response to growing uncertainty about the economic outlook at home and abroad. “Worries about a Chinese ‘hard landing’, financial market jitters, higher interest rates in the US, more austerity at home and the possibility of ‘Brexit’ and EU tensions have collectively pushed the business mood in the dominant service sector to its darkest for three years. “Despite the uptick in growth, the increased uncertainty about the outlook and persistent lack of inflationary pressures means the majority of policymakers will no doubt be more worried about avoiding another downturn than whether the economy needs higher interest rates.”

The February Report on Services will be published on Thursday March 3 2016 at 09:30 UK / UTC.

Contact Information:

For economics comments, data and technical queries, please call: Joanna Vickers Tel: +44 207 260 2234 Email: joanna.vickers@markit.com

For industry comments, please call: CIPS Trudy Salandiak Tel: +44 1780 761576 Email: trudy.salandiak@cips.org

Notes to Editors: Where appropriate, please refer to the survey as the Markit/CIPS UK Services PMI® . The Markit/CIPS UK Services PMI covers transport & communication, financial intermediation, business services, personal services, computing & IT and hotels & restaurants. Each response received is weighted each month according to the size of the company to which the questionnaire refers and the contribution to total service sector output accounted for by the sub-sector to which that company belongs. This therefore ensures that replies from larger companies have a greater impact on the final index numbers than replies from small companies. The results are presented by question asked, showing the percentage of respondents reporting an improvement, deterioration or no change on the previous month. From these percentages an index is derived such that a level of 50.0 signals no change on the previous month. Above 50.0 signals an increase (or improvement), below 50.0 a decrease (or deterioration). The greater the divergence from 50.0, the greater the rate of change signalled. The indexes are calculated by assigning weights to the percentages: the percentage of respondents reporting an "improvement/increase" are given a weight of 1.0, the percentage reporting "no change" are given a weight of 0.5 and the percentage reporting a "deterioration/decrease" are given a weight of 0.0. Thus, if 100% of the survey panel report an "increase", the index would read 100. If 100% reported "no change" the index would read 50 (100 x 0.5), and so on. Markit do not revise underlying survey data after first publication, but seasonal adjustment factors may be revised from time to time as appropriate which will affect the seasonally adjusted data series. Historical data relating to the underlying (unadjusted) numbers, first published seasonally adjusted series and subsequently revised data are available to subscribers from Markit. Please contact economics@markit.com. About Markit Markit is a leading global diversified provider of financial information services. We provide products that enhance transparency, reduce risk and improve operational efficiency. Our customers include banks, hedge funds, asset managers, central banks, regulators, auditors, fund administrators and insurance companies. Founded in 2003, we employ over 4,000 people in 11 countries. Markit shares are listed on Nasdaq under the symbol MRKT. For more information, please see www.markit.com. About PMI Purchasing Managers’ Index® (PMI® ) surveys are now available for over 30 countries and also for key regions including the eurozone. They are the most closely-watched business surveys in the world, favoured by central banks, financial markets and business decision makers for their ability to provide up-to-date, accurate and often unique monthly indicators of economic trends. To learn more go to www.markit.com/economics.

About CIPS

The Chartered Institute of Procurement & Supply (CIPS) is the world’s largest procurement and supply professional organisation. It is the worldwide centre of excellence on procurement and supply management issues. CIPS has a global community of 118,000 in 150 countries, including senior business people, high-ranking civil servants and leading academics. The activities of procurement and supply chain professionals have a major impact on the profitability and efficiency of all types of organisation and CIPS offers corporate solutions packages to improve business profitability. www.cips.org

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