Services sector continues to suffer due to coronavirus

3 June 2020

Business confidence continued to suffer in May despite a gradual reopening of the UK economy, according to the latest PMI.

The IHS Markit/CIPS UK Services Purchasing Managers' Index registered at 29.0 in May, up from 13.4 in April. Readings above 50 signal growth and those below indicate contraction.

The steep reduction in business activity during May was linked to a slump in business and consumer spending amid the Covid-19 pandemic.

Over half of the survey panel (54%) reported a drop in activity during May due to a severe lack of new business to replace work that had been completed after the lockdown, following deep cutbacks to corporate spending. Only 13% signalled an increase in activity.

The latest data highlighted that employment had decreased at the second steepest rate since the survey began in July 1996. Anecdotal evidence indicated that employees had been placed on furlough, while some reported redundancies to manage an expected slump in customer demand over the long term. 

Input prices decreased modestly in May, linked to falling wage bills, lower fuel prices and utility costs. However, there were also reports citing supplier surcharges amid rising air freight costs and higher prices paid for the procurement of PPE. 

Duncan Brock, group director at CIPS, said: “May’s survey data painted a deeply concerning picture of a lockdown slowdown across the service sector as employment dropped at the second fastest rate on record, pipelines of new work were woefully empty and business confidence continued to suffer.

“As the pandemic progressed any hoped-for bounceback in business output never really got going in May following the previous month’s awful results, though a modicum of recovery will offer small respite in some sectors. Pockets of trading began again as firms began adapting to social distancing measures, though only 15% of companies reported a rise in new orders this month. 

“In this aggressively unsympathetic marketplace, supply chain managers voiced their concerns that any significant improvement is unlikely to happen at least in the medium term. As supply chains began to awaken from their deep slumber, continuing logistics challenges increased costs for some firms through reduced wage bills helped to alleviate the pressure.

“As restrictions are eased, there is still extreme uncertainty about how the pandemic will pan out. Continued anxiety about the coronavirus means consumer spending may not be the wind beneath the sails of any immediate return to pre-virus economic activity.”

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