Services sector enjoys 'mini boom'

Will Green is news editor of Supply Management
3 September 2020

The UK services sector experienced the sharpest rise in business activity in five years in August, according to the latest PMI.

Higher levels of output were primarily attributed to the reopening of the economy after lockdown, with service provides noting pent-up demand in the housing market, rising spending due to the government’s Eat Out to Help Out scheme and rising demand for business services.

The IHS Markit/CIPS UK Services Purchasing Managers’ Index rose to 58.8 in August, up on 56.5 in July and against the no-change reading of 50. It signalled the fasted pace of output growth since April 2015.

However, there were warnings the expansion could be built on a “false reality”.

Chris Williamson, chief business economist at IHS Markit, said: “A further surge in service sector business activity in August adds to signs that the economy is enjoying a mini boom as business re-opens after the lockdowns, but the concern is that the rebound will fade as quickly as it appeared.

“The current expansion is built on something of a false reality, with the economy temporarily supported by measures including the furlough and Eat Out to Help Out schemes. These props are being removed.

“The burning question is how the economy will cope as these supports are withdrawn.”

More than a third (34%) of service providers reported a drop in employment numbers in August, with just 11% reporting a rise.

Subdued wage pressures contributed to a slowdown in input cost inflation, and where rising input prices were reported this was often attributed to higher fuel bills and PPE expenditure. Average prices charged by service providers were broadly unchanged on July.

Duncan Brock, group director at CIPS, said: “Government support was a blessing to many firms but as this comes to an end, many service providers are resorting to redundancy schemes under the weight of operating in a tough marketplace.

“With rising input costs for fuel and essential safety equipment and a potential downturn in business again, the ripple effect of this pandemic will be felt throughout the winter.”

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