Underlying danger revealed in service sector

3 August 2018

Growth in the UK service sector slipped to a three-month low in July according to the latest PMI.

The IHS Markit/CIPS UK Services PMI fell to 53.5 last month, down from 55.1 in June. This was the “most disappointing performance” since April but still above the no-change mark of 50.

Incoming new work rose at a softer rate in July than the previous month, and difficulties in filling vacancies persisted.

While some survey respondents, particularly those in the tourism industry, noted the unusually dry summer had a positive impact on sales, others reported both the weather and the football World Cup had disrupted business operations and hurt footfall. A number of respondents also said Brexit uncertainty continued to increase risk aversion in clients and delay decision making.

An ongoing increase of business costs eased from a nine-month high in June but remained strong. The cost inflation was driven mainly by higher wage costs and rising fuel bills, with strong competition in the market for new work preventing firms from passing on the higher costs to clients.

Duncan Brock, group director of CIPS, said the sector’s “disappointing performance” showed it still faced underlying dangers.

“Consumer and client confidence remained persistently half-hearted, and pessimism around the performance of the economy along with Brexit concerns lingered,” he said.

“The sector appears to be bumping along a seesaw path with ups and downs, but with the most disappointing performance since April no one can hide the underlying dangers that still remain in the biggest contributor to the UK economy.”

The service sector’s results concluded a mixed bag of PMIs for July in which construction sector growth rose to its highest rate since last May while the manufacturing sector growth dropped to a three month low.

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