Service sector expands at weakest rate in over two years in August

CIPS 3 September 2015

Business Activity Index falls to 27-month low of 55.6 

Markit/CIPS UK Services PMI®

 Key Points:

  • Business Activity Index falls to 27-month low of 55.6
  • Slowest rise in new business since April 2013
  • Input price inflation eases for third straight month 

Latest PMI® survey data from Markit and CIPS continued to signal growth of the UK service sector in August, but the weakest rate of expansion in over two years. Growth of business activity moderated for the second month running, primarily as a result of the slowest increase in new business since April 2013. Growth remained strong overall, however, and was broadly consistent with the long-run survey average. Firms raised headcounts at a faster rate than July’s recent low, albeit one that remained slower than those registered during the first half of 2015. Inflationary pressure on input costs eased further, and firms’ charges rose only marginally.

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 Business Activity Index fell for the second month running in August, from 57.4 in July to 55.6. The latest figure remained above the long-run survey average of 55.2, but signalled the weakest rate of expansion since May 2013. On a quarterly basis, data for July and August point to the slowest rate of growth since the second quarter of 2013. Business activity has nonetheless risen for 32 consecutive months, the second-longest sequence of growth since the survey started in July 1996. 

New business received by UK service providers rose for the thirty-second successive month in August. The rate of expansion remained strong in the context of the survey history, but slowed since July to the weakest since April 2013. 

Reflecting the slower rise in new business, the volume of incomplete work in the service sector increased at a weaker pace in August. That said, backlogs have now risen in every month since April 2013, barring a slight fall in June.

Service sector employment in the UK continued to rise in August. The rate of job creation picked up from July’s recent low, but was nonetheless the second-weakest since March 2014. That said, all areas of the service sector except Hotels & Catering posted growth of workforces during the latest period.

Business expectations remained strongly positive overall in August, with almost half of the survey panel anticipating growth at their units. That said, sentiment eased to the weakest since February. Cost pressures eased for the third month running in August. The rate of inflation hit the weakest since January, with some firms reporting lower fuel (especially diesel) prices. Wages remained the main source of higher average input costs. Prices charged by service providers rose only fractionally. 

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

“The services sector left little to get excited about as the growth rate of new business was reported as the lowest for 28 months and the rate of overall activity growth the softest for 27 months. 

“That said, services output has now risen for 32 consecutive months, and backlogs continued to rise. 

“Staffing levels were higher and included some apprenticeships when compared to last month’s disappointing results, but concerns around the reality of the costs of the living wage were highlighted by respondents in a sector reliant on constant, high-quality, trained staff. 

“Because activity growth remained solid in the context of the survey history, companies continued to display optimism around future business opportunities. Competitive pressures, marketing activity and strong contract negotiation skills kept output prices steady which was good news for consumers. 

“In summary, the coming months are likely to show firms planning for more modest growth of opportunity rather than for the highs seen in the last few years.” 


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