Services sector ‘regains some momentum’

3 July 2020

The easing of the lockdown restrictions in the UK has allowed the services sector to regain momentum, according to the latest PMI.

The IHS Markit/CIPS UK Services Purchasing Managers’ Index registered 47.1 in June, up from 29.0 in May. While the reading was the highest for four months, it was still under the neutral 50.0 threshold.

A third of firms reported a drop in business activity during June, citing highly subdued demand and disruptions related to the Covid-19 pandemic, while 28% reported an expansion.

The data showed the slowest fall in new work since the downturn began in March. Where companies reported a drop in new orders this was attributed to cautious business and consumer spending. Growth was often linked to reopened business operations and pent-up demand.

Firms reported cutbacks to staffing numbers in June, but rates of job-shedding eased since the start of the downturn in March. Service providers mainly commented on cost-reduction measures and a slump in demand. 

Cost burdens were broadly unchanged with some firms citing higher average costs due to spending on personal protective equipment and reduced operating capacity, but others noted lower fuel bills and reduced payroll costs.

Duncan Brock, group director at CIPS, said: “A cessation in some lockdown policies enabled the services sector to emerge tentatively from the shadows last month and reclaim some normality, with the PMI leaping to a four-month high.

“Though the sector remained in overall contraction territory, the reopening of business premises unclogged levels of dampened demand and created hope that the worst impact of the pandemic could be over. However, as consumers remain fairly cautious, tightening purse strings, the highest levels of business optimism in four months may be a little premature.

“As the sector regains some momentum, employment levels amongst services personnel remain deeply concerning. Businesses securing their premises to ensure Covid safety for staff and customers means operating costs are rising.

“Some firms are resorting to heavy discounting, others accelerating innovative solutions to change their operating model to stay in business. For others, the decision to shed jobs may be the only solution as the fight for survival continues and the UK economy grits its teeth for the months ahead.”

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