Markit/CIPS UK Services PMI® posted 57.7 in June.
- Ongoing new business growth and capacity constraints drive payrolls higher
- Reports of higher wages push up operating costs
UK service providers signalled a survey record increase in payroll numbers during June as new business rose at the fastest pace in six months and capacity remained under pressure with backlogs rising at an accelerated rate. Companies raised activity to deal with higher workloads, whilst also retained a high degree of positive sentiment regarding future activity with over 50% of the survey panel forecasting growth in the coming 12 months.
The headline index from the report, the seasonally adjusted Business Activity Index, recorded 57.7 in June. That was down from May’s 58.6 and a three-month low but nonetheless indicative of a sharp increase in activity. Nearly 28% of the survey panel recorded growth, with increased workloads the primary factor driving activity higher during the latest survey period.
June’s survey signalled the sharpest increase in new business volumes for six months. Latest data marked the eighteenth month in succession that a rise in new work has been signalled, with panellists reporting that trading conditions remained positive and market confidence high in June. Marketing activities and better weather were also noted as factors driving new business higher.
Another substantial increase in new work in June placed additional pressure on capacity levels. Volumes of work outstanding held by UK service providers increased at the strongest rate for four months, with growth also well above the survey’s historical average.
Higher backlogs in part reflected staff shortages, according to panellists. This was despite a survey record increase in staffing levels. June’s survey data indicated an unprecedented rise in employment, with over 27% of the survey panel recording an increase in staff numbers since May.
Payroll numbers have now been rising for 18 months in a row, with growth in part underpinned by positive projections for activity. Despite easing to the lowest since last November, business confidence remained high during June amid forecasts of sustained demand improvements and hoped for returns on capital investment.
A by-product of the tightening service sector labour market was reports of increased wages. Many panellists attributed another net rise in their operating costs during June to higher average salaries and wage costs. Overall input prices were also driven higher by reports of increased food, insurance and sub-contractor costs.
Passing on higher costs to clients remained a challenge. Latest data showed an increase in output charges for the thirteenth successive month, but at only a marginal rate. Competitive pressures continued to weigh on pricing power.
David Noble, Group Chief Executive Officer at the Chartered Institute of Purchasing & Supply:
“A hiring spree among the UK’s services firms arrived in response to the sharpest increase in new business in six months. As levels of activity surged higher, along with strong customer demand and favourable market conditions, job creation accelerated to a record survey high in June. With optimism increasing and momentum continuing to build, there is no evidence to suggest that the speed in the recovery is about to slow down anytime soon.
But, the elevated levels of new work in June resulted in notable capacity constraints, which in turn, also caused an increase in backlog accumulation and a tightening labour market. Reflecting these shortages in staffing levels, wages increased during this month, pushing running costs up. Services companies have been, however, only able to pass on a limited proportion of these higher costs to clients.
Overall in June, the UK services sector, alongside strong performances from manufacturing and construction, has cemented expectations that the economic recovery can power ahead into the second half of the year.”
The July 2014 Report on Services will be published on: Tuesday 5th August 2014 at 09:30