Service sector growth remains sharp

CIPS 3 October 2014

Rising new business and higher workloads underpin activity growth


Markit/CIPS UK Services PMI®

- Rising new business and higher workloads underpin activity growth
- Employment levels continue to rise markedly
- Business confidence strengthens to three-month high

Growth of the UK’s private service sector economy was sustained during September, underpinned by sharply rising new business volumes. Capacity remained under pressure, with backlogs of work continuing to increase, and companies were suitably encouraged to add to their payroll numbers.

Confidence in the future also helped to support payroll expansion, with latest data showing business expectations at a three-month high.
The headline index from the survey, the seasonally adjusted Business Activity Index, posted 58.7 in September. That was down from 60.5 in August and the lowest level for three months. However, the index remained at a level indicative of rapid growth that was well above the survey average. Companies reported that a combination of rising new business and higher new enquiry levels had supported growth during the latest survey period.

September’s survey indicated that new business volumes continued to increase, with the rate of expansion improving on August’s three-month low. Against the backdrop of a positive economic environment, demand was reported to be strong. Client confidence was high and marketing pushes also helped to drive growth higher over the month.

As new business volumes rose, capacity remained under pressure with levels of work outstanding continuing to increase. The rate of growth was marked, with some reports indicating difficulties in sourcing goods from suppliers.

As backlogs increased, and new business growth remained sharp, service sector companies continued to add to their staffing levels. Latest data showed that employment increased for a twenty-first month in succession, with over a fifth of the survey panel recording a rise in their payroll numbers. Additional staff were not only recruited to deal with current workloads, but in expectation of further growth.

Forecasts for activity remained in positive territory over the month, with around half of the survey panel predicting growth from present levels over the next year. Confidence improved to a three-month high as demand from both domestic and overseas clients is forecast to strengthen. There was some mention of improved stability in the business environment following the results of the September Scottish referendum on independence.

On the price front, average input costs were driven higher in September by an increase in supplier prices and rising wage bills. The overall rate of inflation signalled by the survey was the sharpest in four months.

Several service providers responded to higher costs by increasing their own charges. Although modest, the degree to which output prices rose was the sharpest seen since January.

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

“Whilst not quite hitting the heights of August’s exceptionally high growth rate, services businesses still expanded rapidly in September. There are positive signs all around with jumps in confidence levels and new business volumes suggesting the future continues to look rosy for the sector. Many businesses reported that the Scottish independence referendum result has had a positive impact by increasing their confidence in the stability of the business environment.

“Workers are increasingly feeling the benefit of growth with many businesses continuing to hire more staff and signs that wages are increasing as employee bargaining power improves. In fact, higher wages seem to be the primary driver for the sharpest rise in output prices since January and suggest inflation may be returning to the sector.

“However, continued strong expansion is straining parts of the supply-chain and some businesses reported troubles in sourcing goods as suppliers struggle to keep up with the sustained high growth in demand.

“Looking across all sectors and the third quarter of 2014 as a whole, it is clear that we currently have a two-speed economy. The manufacturing sector appears to be heading towards stagnation whilst the construction and services sectors continue to power ahead and drive overall UK economic growth.”


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