Growth in UK services hit a three-month high in May but against the backdrop of strong cost pressures, according to the latest PMI.
The IHS Markit/CIPS UK Services Purchasing Managers’ Index climbed to 54 in May, up on 52.8 in April and against the neutral 50 reading, which indicates neither contraction nor expansion.
Competitive pricing, greater business investment and new product launches led to improved sales volumes, but the increase in new work was one of the weakest seen since summer 2016.
Yet again, reports from survey respondents suggested subdued consumer spending and Brexit-related concerns among large corporate clients weighed on new business growth.
Rising salary payments and greater fuel bills resulted in another strong increase in average cost burdens, but the latest data points to only a moderate rise in average prices charged by service providers.
Duncan Brock, group director at CIPS, said: “It felt as though the sector was losing its lifeblood this month as Brexit worries continued to claw away at confidence, new orders and business margins. The survey revealed clients and consumers were reluctant to spend with one of the lowest rises in new orders in the last two years, and though overall activity increased, it was at a restrained pace.
“The sector will be looking for an urgent dose of clarity and direction from policymakers with Brexit less than a year away, because without a sound pipeline of new work coming through this creeping slowdown could become a state of stagnation, or worse.”
Chris Williamson, chief business economist at IHS Markit, said: “The improvement in service sector activity adds to evidence that the economy is on course to rebound in the second quarter but, like the earlier manufacturing and construction surveys, raises questions about the outlook. So far, the three PMI surveys indicate that GDP looks set to rise by 0.3–0.4% in the second quarter.
“Costs are being pushed higher by rising oil prices and wages, although subdued demand means firms are struggling to pass these higher costs onto customers. Average selling prices for goods and services showed the smallest rise for 11 months in May.”
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