Markit/CIPS UK Construction PMI®
- Activity rises but growth rate eases slightly
- New business grows at fastest rate since February
- Largest input cost rise since February 2013
The UK service sector continued to recover from July’s EU referendum-induced shock, according to PMI® survey data for September from IHS Markit and CIPS.
Business activity rose for the second month running, following a sharp drop in July linked to uncertainty surrounding the UK’s vote to leave the European Union. Moreover, new business rose at the fastest pace since February and the rate of job creation picked up.
However, future expectations remained very low by historical standards and the survey recorded the sharpest increase in service sector input prices in over three-and-a-half years.
The survey’s headline figure is the seasonally adjusted Markit/CIPS Services Business Activity PMI, a single-figure measure designed to track changes in total activity. Readings above 50.0 signal growth compared with the previous month, and below 50.0 contraction.
The Business Activity Index remained above the no-change mark of 50.0 in September, at 52.6, signalling growth of UK services output. Down slightly from 52.9 in August, the latest figure indicated a further moderate rate of expansion at the end of the third quarter, following a contraction in July in the wake of the EU referendum. The rate of expansion in the latest period was weak in the context of historical data, however, with the Index below its long-run level of 55.1. The Index averaged 50.9 over Q3 as a whole, the lowest since Q4 2012.
The survey data signalled a strengthening trend in new business inflows, as companies reported new opportunities and customer enquiries, rising demand from overseas clients linked to the weak pound sterling and client confidence recovering after the initial Brexit vote shock. New business rose at the fastest pace since February, albeit with the rate of increase remaining below the long-run survey average.
Stronger growth of new work led to a second successive month-on-month accumulation of outstanding business in September. This followed the steepest drop since September 2009 in July in the wake of the EU referendum.
Having resumed in August following July’s pause, service sector employment continued to rise at the end of the third quarter. Moreover, the rate of job creation accelerated to the fastest since April.
Business expectations continued to recover from July’s seven-and-a-half year low. Sentiment was the strongest in three months, but still weak in the context of historic survey data as firms reported ongoing uncertainty regarding the implications of Brexit.
The weakness of sterling continued to exert upward pressure on costs in September. Input price inflation accelerated for the seventh time in eight months to the highest since February 2013, and was greater than the 20-year long-run survey average. Subsequently, service providers raised their charges at the fastest rate since January 2014.
David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply: “Policymakers were offered much-needed positive news for September after the recent Brexit upheaval, as the service sector reported the fastest increase in new business since February this year.Though the overall activity index still remained below its long-term average and had dipped slightly compared to August, it reflected a modest revival of fortunes for services businesses.
“Employment increased for the second month in a row, and at its fastest rate for five months, as postponed recruitment drives were given the go-ahead and firms addressed the demands of new project launches and increased export orders.
“Input prices continued to remain a threat to margins, rising at the strongest rate since February 2013. Firms raised their prices in response, to counteract increased costs for fuel, food and elevated wage bills and as the weaker pound had an effect. Work backlogs rose for the second month though some capacity was still available as firms played catch-up after the Brexit lull.
“Though business optimism improved further from July’s seven-and-a-half-year low, and was the strongest for three months, disquiet around Brexit still remained. The sector concentrated on stabilising rather than forging ahead with confidence, as optimism stayed below the long-term average.”
The October services PMI will be published on Thursday 3 November 2016 at 9.30 UK/8.30 UTC.