CIPS News


UK services expansion weakens in June and outlook darkens

CIPS 5 July 2016

Growth of UK service sector activity weakened in June to match the 38-month low recorded in April, according to the latest PMI® survey data from Markit and CIPS.

Markit/CIPS UK Services PMI®

Key Points:

- Growth over second quarter as a whole slowest since Q1 2013
- Expectations weakest since December 2012
- Slowest rise in employment since August 2013

Growth of UK service sector activity weakened in June to match the 38-month low recorded in April, according to the latest PMI® survey data from Markit and CIPS.

Growth over the second quarter as a whole was the weakest since the first quarter of 2013 when the current upturn began. Moreover, the 12-month outlook was the darkest since December 2012. Companies often reported that uncertainty linked to the EU referendum had weighed on workloads and incoming new business. The data collection window for the June survey was 13-28 June, with 89% of responses received before 24 June.

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 from 53.5 in May to 52.3 in June, matching April’s 38-month low and signalling a relatively weak rate of growth in UK services output. Activity has risen every month since January 2013, but the index averaged just 52.7 in the second quarter, the weakest of any quarter since Q1 2013. The index has averaged 55.2 since it was first compiled in July 1996.

The volume of new business received by UK service providers rose at a slightly faster rate in June, but the increase was still the second-weakest seen since the upturn began three-and-a-half years ago. Firms commonly reported that uncertainty linked to the EU referendum had often led to postponed or cancelled orders from customers.

The ongoing weakness of new business inflows led to a further decline in the level of outstanding work in the UK service sector in June. Backlogs declined for the third month running, dropping at the fastest rate since February 2013.

Service providers continued to expand their workforces, on average, in June. But with new business rising at a weak rate and backlogs of orders falling, the rate of job creation moderated to the slowest since August 2013.

Average input prices rose at a pace that was little-changed from May. Around 15% of firms reported cost inflation, linked to higher salaries and fuel prices, although the overall rate of increase remained historically weak. Meanwhile, charges levied by service providers continued to rise modestly.

Business expectations weakened in June. The overall strength of sentiment was the lowest since December 2012. Firms reported that uncertainty linked to the EU referendum had weighed on their outlook for activity over the coming 12 months.

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

“Uncertainty continued to weigh on the service sector in June with impacts reported on new business and the lowest optimism for future activity for three-and-a-half years.

“The majority of respondents completed the survey before Brexit and attributed these effects to both a general slowing in the UK economy and a pause in normal economic activity as customers and business awaited the results of the EU referendum.

“The rate of job creation slowed for a third successive month to the weakest since August 2013. With a lack of new orders and an increase in prices for fuel combined with higher salaries to retain skilled staff, employment levels could fall in the coming months.

“These subdued figures are a wake-up call to policymakers that fast, decisive action is necessary to prevent further slides in confidence and activity in the key service sector and, by extension, the overall economy.”

For economics comments, data and technical queries, please call:

Joanna Vickers
Tel: +44 207 260 2234
Email: joanna.vickers@markit.com

For industry comments, please call:

CIPS
Trudy Salandiak
Tel: +44 1780 761576
Email: trudy.salandiak@cips.org

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