UK services growth weakest in nearly three years in February

CIPS 3 March 2016

The seasonally adjusted Business Activity Index fell to 52.7 in February, from 55.6 in January.

Markit/CIPS UK Services PMI®

UK services growth weakest in nearly three years in February

- Business activity and new work both expand at slowest rates since March 2013

- Employment growth at two-and-a-half year low

- Inflationary pressures remain weak

Summary: The UK’s dominant service sector lost momentum in February, according to the latest PMI® survey data from Markit and CIPS. Growth of both total business activity and new business were the weakest since March 2013, leading firms to raise employment at the slowest pace in two-and-a-half years. More positively, the volume of outstanding work rose following January’s decline. The 12- month outlook for the sector improved to a threemonth high, but remained weaker than the longrun survey average. Inflationary pressures remained weak, both in terms of input prices and prices charged by service providers.

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 seasonally adjusted Business Activity Index fell to 52.7 in February, from 55.6 in January. This signalled the slowest rise in service sector activity since March 2013. Moreover, the Index was below its long-run trend level (since July 1996) of 55.2. Nevertheless, services output has risen continuously for 38 months, the second-longest sequence of expansion in the survey history.

The weaker increase in services activity mainly reflected a slower expansion in the volume of incoming new business. New contracts received by UK service providers rose at the weakest pace in almost three years, with some firms commenting that rising levels of global economic uncertainty had resulted in delays in clients placing new orders. Meanwhile the total level of outstanding business rose, following January’s decline, but the rate of growth was only marginal. Underlining the overall subdued nature of business conditions in the service sector was a slowdown in the rate of job creation for the third time in four months. Services employment rose at the slowest pace in two-and-a-half years. The longer term outlook for activity improved slightly from January’s three-year low to the jointstrongest in five months. That said, expectations remained weaker than the trends shown in 2013, 2014 and 2015. Less than half of survey participants forecast growth at their units over the next 12 months, although only 8% expect a decline in business.

Average input prices rose in February, linked mainly to salaries. The rate of inflation remained historically weak, however, amid reports of lower fuel and energy prices. Subdued cost pressures and competition for business had a limiting effect on charges set by service providers during the month, with data signalling only a fractional overall rise.

David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply: “A maelstrom of sluggish global economic performance and relatively subdued business confidence resulted in a downbeat message in February. The combined pressures from uncertainties around the EU referendum, China and Middle East crowded out any strong optimism for the future. “Growth rates for both new work and overall business activity were the lowest since March 2013. Any new business was largely driven by increased marketing and networking efforts, new product launches and pipeline work finally becoming reality, and not from strong demand. “Employment continued to rise for the 38th month in a row, but any hoped-for surge in staffing levels never materialised and some 12% of respondents cut jobs or failed to replace staff, to hold on to hardwon margins. With input price inflation still muted, any cost rises were attributed to salary increases to retain skilled staff or to meet future requirements of the National Living Wage. Some firms also mentioned a scarcity of professionals and increased demand for procurement and supply chain management staff to meet challenges ahead.”

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

Joanna Vickers
Tel: +44 207 260 2234

For industry comments, please call CIPS :

Trudy Salandiak
+44 1780 761576

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