Services sector 'showing signs of recovery'

3 March 2021

The UK service sector is showing signs of recovery after a sharp fall at the beginning of the year, according to the latest PMI.

Lockdown restrictions on travel, leisure and hospitality continue to dampen overall activity but some pockets of technology and business services managed to show signs of growth.

And while staffing levels continued to decrease they did so at the slowest pace since employment figures were first hit by the coronavirus pandemic in March 2020.

Good progress with the UK’s vaccine rollout programme and the prospect of loosening trade restrictions led to a rise in business expectations across the service economy for the fourth consecutive month.

The overall IHS Markit/CIPS UK Services Purchasing Managers’ Index stood at 49.5 in February, sharply up from the eight-month low of 39.5 in January.

While figure has remained below the threshold 50.0 no-change mark since November, the latest results signalled the slowest decline in service sector output in the last four months.

A lack of sales opportunities and hesitancy among clients due to the pandemic were blamed for subdued demand.

And Brexit-related difficulties were seen as the main factor holding back sales to EU customers in a month when new work from abroad continued to fall sharply.

International travel restrictions, followed by regulatory and supply chain issues arising as a result of Brexit, were cited as responsible for lowering exports.

Respondents indicated that a sharp and accelerated increase in average cost burdens had been seen at service sector companies and that import price inflation was the strongest for 12 months.

Higher fuel bills and increased shipping costs were among the most commonly-cited reasons for the rise.

Duncan Brock, group director at CIPS, said: “The dominant services sector bounced back in February and though it remained in the contraction zone, presented a more positive picture than at the start of the year.

“Vaccine programmes and the promised uplift in marketplace restrictions offered hope to ailing firms looking forward to a summer of roaring trade as optimism climbed to its highest since December 2006.”

However Brock added the “rain on this parade” was the highest rise in input costs since February 2020, and this was being passed on to consumers at a faster rate due to rising prices for shipping, fuel and fresh food deliveries.

Brock added that extended furlough schemes were hiding the true picture regarding employment figures.

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