Uncertainty slows UK services growth

Will Green is news editor of Supply Management
5 June 2017

Growth in the UK services sector slowed in May as caution around the General Election took hold, according to the latest PMI.

Squeezed household budgets and delayed spending decisions among clients ahead of the election were linked to the slowest rise in business activity since February.

The Markit/CIPS UK Services Purchasing Managers’ Index slumped to 53.8 in May, down on 55.8 in April and against the no-change reading of 50.

Duncan Brock, director of customer relationships at CIPS, said the sector was “out of sync” with manufacturing and construction, which were “fired up and running”.

“It was clear that slower new business growth let the side down, impacted by caution around the General Election, and a tightening of purse strings,” he said.

“Not even stiff competition between businesses absorbing higher prices for food and the effects of the national living wage could tempt consumers to spend.”

Some firms noted that heightened economic uncertainty had acted as a brake on business-to-business sales growth.

There was a further slowdown in input cost inflation from the peak seen in February, and where a rise in prices was reported, this was attributed to higher staff salaries and an increase in prices charged by suppliers. The slowdown, coupled with strong competition for new work, led to the weakest rise in prices charged by service sector firms since November 2016.

Chris Williamson, chief business economist at IHS Markit, said: “Optimism about the year ahead is running below the long-run average, weighed down principally by concerns over Brexit, political uncertainty and weaker spending by households.

“However, at the moment firms generally remain upbeat and very much in expansion mode: the employment indicators from the three PMI surveys are consistent with around 30,000 private sector jobs being added each month.”

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