UK service sector growth slows in January, but remains elevated

CIPS 5 February 2014

New business growth down to lowest in eight months

Data collected 13-29 January

Key Points:
- New business growth down to lowest in eight months 

- Capacity under pressure as backlogs rise to greatest degree since May 1997

- Business confidence at the highest level since March 2010

The UK service sector remained on a strong growth footing at the start of 2014, with activity and new business both continuing to rise markedly albeit at the slowest rates since mid-2013. Capacity came under renewed pressure, with backlogs rising at the sharpest rate since May 1997. Employment growth remained marked as a result, with recruitment in part bolstered by positive business expectations for activity. Confidence was at its highest since March 2010.

The headline Business Activity Index recorded a level of 58.3 during January. That was down from 58.8 during December and the lowest reading for seven months. Growth has now weakened for three months in succession, though remains comfortably above its long-run trend.

Underpinning growth was again a sharp increase in new work. As with activity, the latest data showed a continuation of the trend of slower increases in new business, although at a still historically elevated rate. Companies reported being able to conduct business in a conducive economic environment, with considerable success in converting enquiries into hard contract wins. There was some evidence that companies were securing new business from abroad.

were receptive to price increases, and offered the opportunity to recoup ongoing rises in their cost base. Latest data showed that input costs rose again in January, with wages and utility prices reported to have increased during the month.

David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply:
"Continued strong, albeit slower growth in the services sector at the start of 2014 helped to drive confidence up to its highest level since March 2010. Alongside strong performances in construction and manufacturing activity and against a backdrop of improving economic recovery, business expectations and investment levels continue to climb; all signs economic growth can be sustained in Q1.

"The surge in demand resulted in backlogs of work escalating at the sharpest rate in over 16 years. As a result, capacity is continually being tested and firms have sought to recruit skilled candidates, with employment levels rising for the thirteenth month in a row.

"At the same time, output price inflation accelerated to its highest in over two-and-a-half years in January, as firms have enough confidence to push their own prices up. Consequently, companies are able to maintain revenues and invest more, ensuring a healthy level of expansion in the near future."

The February Report on Services will be published on Wednesday 5th March 2014 at 09:30

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