Services sector signals promising growth

3 November 2010

3 November 2010 | Lindsay Clark

The UK services sector posted its strongest growth in four months in October, according to the Markit/CIPS Purchasing Managers’ Index.

The measure of business activity in the sector improved further on August’s low to reach a four-month high of 53.2, up from 52.8 in September. A score of 50 represents no change. However, growth rates were still relatively modest, the report said.

Paul Smith, senior economist at Markit said: “October’s survey suggests a modest improvement in service sector growth, supported by a slightly stronger expansion from new business. However, on both output and new orders measures, rates of expansion remain soft compared to long-run averages, as companies continue to digest the true effects on the economy of the coalition government’s Comprehensive Spending Review.”

CIPS CEO David Noble said weak staffing levels meant the sector was unlikely to compensate for the redundancies resulting from the UK government cuts.

“While the private sector has been set the task of picking up the pieces and making up the shortfall of job losses in the public sector, it’s hard to tell at this point where the necessary demand and new contracts will come from to make this happen. The trend in staffing levels remains weak as companies choose not to replace leavers and instead focus on efficiency drives as caution and uncertainty hangs in the air.

“Purchasing managers report increasing prices as cost pressures in the supply chain continue to rise. However, significant price inflation looks unlikely given that demand still remains fragile and the pockets of success in new business don't reflect the bigger picture.”

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