Widespread redundancies reported amid services sector downturn

3 December 2020

The second national lockdown in England and ongoing curbs on customer-facing services across the UK led to a downturn in business activity in November, according to the latest PMI. 

Firms reported a much softer downturn than during the first lockdown and resilient spending among businesses in sectors that had remained open throughout the month. 

The IHS Markit/CIPS UK Services Purchasing Managers’ Index dropped to 47.6 in November, from 51.4 in October. The index was below the 50.0 no-change mark for the first time in five months. 

The survey highlighted the fragility of the labour market across the sector as employment numbers fell sharply since October. The rate of job shedding also accelerated to its fastest for three months. 

There were widespread reports from firms of redundancies due to shrinking customer demand, pressure to cut costs and concerns about the speed of recovery.

Firms also recorded higher operating expenses for the fifth consecutive month. Rising input costs contributed to a squeeze on margins, and service providers signalled another round of price discounting in November.

Meanwhile, positive news in relation to vaccines led to much greater levels of business optimism in November. Around 60% of those surveyed said they expected a rise in business activity during the next 12 months, and only 15% predicted a reduction.

Tim Moore, economics director at IHS Markit, said: “New lockdown measures and tighter pandemic restrictions unsurprisingly tipped UK private sector output back into decline during November. However, the collateral damage on areas outside of hospitality, leisure and travel has been far more modest than in the first lockdown period. 

“Overall service sector output was still severely impacted by widespread business closures among consumer-facing service providers, but other types of firms often commented on successfully adapting to the new lockdown restrictions and seeing a reduced impact on client spending than initially expected.

“Hopes that the pandemic will be brought under control from an effective vaccine resulted in a sharp improvement in business optimism during November. Across the UK private sector as a whole, confidence about the year ahead outlook reached its highest since March 2015. That said, survey respondents also cited rising business uncertainty in the short-term, largely due to ongoing restrictions on trade, which contributed to another round of job cuts and efforts to rein in discretionary spending during November.”

Duncan Brock, group director at CIPS, said: “Supply chain managers reported rising costs as a constant burden and firms faced higher wage expenditure linked to redundancy payments with more bad news on the employment front. Job shedding continued for the ninth month in a row and its ripple effect will have serious implications for an already-struggling UK economy. The spectre of reduced consumer and client spending looms over the festive period, and Brexit disruption fears are thrown into the mix of challenges as everyone holds on to their cash.

“Though the sector’s fall into contraction is difficult to watch it was nowhere near the pandemic-induced lows seen earlier this year and the highest optimism since February means future expectations are upbeat. We can only hope that businesses can batten down the hatches and with grit and determination, get through the next few months. It could be spring until a more sustainable recovery appears, buoyed up by vaccine hopes and when lost workforces can return again.”

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