Growth stabilises at steady pace in December

CIPS 6 January 2016

Business activity rises at pace broadly in line with average over second half of 2015 

Markit/CIPS UK Services PMI®

 Key Points:

  • Business activity rises at pace broadly in line with average over second half of 2015
  • Inflationary pressures remain weak 
  • Business expectations remain relatively muted 

Service sector growth in the UK stabilised at a solid pace in December, according to the latest PMI® survey data from Markit and CIPS. Total activity rose at a strong overall rate, supported by a sharp rise in new business. Employment increased at a robust pace, albeit the weakest in five months. That said, growth in recent months has been slower than in the first half of the year and when compared with the trend rates set in 2013-14. Reflecting this, outstanding business continued to grow only modestly in December, and firms’ longer-term expectations for business activity were the weakest since early-2013.

The headline figure for the survey is the seasonally adjusted Markit/CIPS UK Services Business Activity Index, a single-figure measure designed to track changes in total UK services activity compared with one month previously. Readings above 50.0 signal growth of activity compared with the previous month, and below 50.0 contraction. 

The current period of rising UK service sector output was extended to three years in December, as signalled by the Business Activity Index remaining above the no-change mark of 50.0. The index fell slightly to 55.5, from 55.9 in November, but remained just above the long-run survey trend level of 55.2, indicative of solid overall growth.

That said, the headline figure has averaged 55.4 in both Q3 and Q4, representing a weaker growth outcome in the second half of 2015 than the strength achieved in both 2013 (56.9) and 2014 (58.2). The index averaged 56.7 over 2015 as a whole. 

Growth was supported by a further strong increase in new business in December as firms reported successful marketing campaigns. The pace of growth eased slightly since November, but remained faster than the long-run survey average.

Meanwhile, the volume of outstanding business increased at the sharpest rate since August, albeit one that remained moderate overall. 

Matching the trend for output, the current sequence of employment growth in the service sector was extended to three years in December. The rate of job creation slowed to the weakest since July, but remained strong in the context of historic survey data. Survey data tracking firms’ expectations for activity over the forthcoming 12 months were the weakest since February 2013. Solid overall growth in activity is predicted for 2016, but the strength of sentiment remained weaker than the long-run survey average in December. 

December saw the strongest rise in average input prices in the service sector in five months, mainly linked to wages. That said, input price inflation remained historically muted. Prices charged by service providers rose only marginally during the month. 

David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply: 

“Service providers were still tackling rising levels of unfinished work in December – now 32 increases in 33 months as the outstanding business index remained above neutrality. 

“With increased business margins as a result of ongoing lower fuel and commodity prices, wages were up. Businesses tried to retain talented staff by rewarding good performance and continuing to increase capacity to meet further strong growth in new business. Some respondents reported the enduring difficulty of finding skilled individuals when needed.

“Through new lines of business, ongoing – if slightly muted – optimism for the future, new marketing activity and a three-year continually sturdy rise in output from the sector, stability and modesty are the watchwords for this month.” 

The January Report on Services will be published on Wednesday February 3 2016 at 09:30 UK / UTC


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