Good weather boosts UK services

4 July 2018

UK service providers saw business activity expand at its fastest rate for eight months in June – continuing the resurgence following March’s snow-related disruption, according to the latest PMI.

This was accompanied by the strongest increase in new work since May 2017.

Modest rates of job creation, however, reflect difficulties recruiting additional staff or efforts to reduce operating expenses.

Margins came under pressure again across the service economy as respondents reported the steepest rise in average cost burdens since last September.

The IHS Markit/CIPS UK Services Purchasing Managers’ Index posted 55.1 in June, up from 54.0 in May, which keeps it above the 50 no-change mark for the twenty-third consecutive month.

Figures signalled the strongest rate of expansion since October 2017, with respondents reporting an upturn in client demand, particularly for business and financial services.

Unusually favourable weather conditions were also said to account for boosted consumer spending. Data revealed a quickening rise in new work received by service providers, with the overall rate of new business growth seeing its fastest rise for just over one year.

This was as a result of successful product launches, new marketing initiatives and improving economic conditions, according to respondents.

However Brexit-related uncertainty once again reared its head, appearing to hold back business investment, particularly in relation to spending by large corporate clients.

Rising overall demand in June has put pressure on operating capacity at service sector firms, leading to the largest increase in backlogs of work since July 2015.

Cost burdens in June accelerated as service providers noted greater fuel bills and staff salaries while higher operating expenses resulted in the fastest rate of prices-charged inflation since March.

Some service sector firms said high levels of capacity utilisation were among the reasons to pass on greater costs to new clients.

Duncan Brock, group director at CIPS, said: “Exceeding expectations, the sector ended on a positive note at the end of the second quarter.

“However the downside of this achievement came in the form of relentless capacity difficulties as business backlogs rose to an acute degree, not seen for around three years.”

Brock cited salary pressures and the struggle to find skilled hires as well as increased costs for fuel, as factors making the sector experience its sharpest cost inflation since September last year.

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