Growth in the UK services sector was the slowest since February and below economists’ expectations, with the Markit/CIPS purchasing managers’ index (PMI) for services falling to 53.8 in May, down from 55.8 in April.The sector, which accounts for more than three-quarters of the nation’s GDP, saw output ease back from April’s four-month high because of a squeeze on household spending and political uncertainty over the election outcome. The services PMI followed reports last week for the manufacturing and construction sectors that showed unexpectedly healthy growth.

Some momentum in second quarter

Chris Williamson, chief business economist at IHS Markit, said, “Despite slower growth in May, the surveys indicate that the economy has regained some momentum in the second quarter.“The three PMI surveys are running at levels that are historically consistent with GDP growing at a robust 0.5 per cent rate, albeit with the slowing in May posing some downside risks to the near-term outlook.“Optimism about the year ahead is running below the long-run average, weighed down principally by concerns over Brexit, political uncertainty and weaker spending by households.“However, at the moment firms generally remain upbeat and very much in expansion mode: the employment indicators from the three PMI surveys are consistent with around 30,000 private sector jobs being added each month.”Jobs growth in the sector showed a rise in May for the 10th month in a row and 44 per cent of companies said they expected a growth in activity in the year ahead. Only 8 per cent of firms said they expected a decline in business.Duncan Brock, director of customer relationships at the Chartered Institute of Procurement & Supply, said the PMI showed the vulnerability of the sector to political uncertainty.“The powerhouse driving UK GDP lost some of its force this month, with the weakest performance since February, revealing a fragility out of sync with the other sectors, which were fired up and running,” he said.

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Caution around the general election

“It was clear that slower new business growth let the side down, impacted by caution around the general election and a tightening of purse strings. Not even stiff competition between businesses absorbing higher prices for food and the effects of the National Living Wage, could tempt consumers to spend.“Disappointingly, businesses also delayed crucial buying decisions on the back of lingering doubts around the strength of the economy, which in turn affected job creation.”However, Samuel Tombs, chief UK economist at Pantheon Macroeconomics, commented, “The pullback in the services PMI in May from April’s four-month high is a setback to widespread hopes that the economy’s slowdown in the first quarter will be fleeting.“Both business activity and orders increased at their weakest rates since February. Some respondents reported that clients were delaying decisions until after the general election, but we see no past evidence that the PMI or GDP growth has been adversely affected by elections.”Howard Archer, chief economic adviser to the EY Item Club, added, “Overall, it is still possible that GDP growth could improve to 0.5 per cent in Q2 from 0.2 per cent in Q1, but downside risks have increased.“Markedly softer services activity was the main factor behind the sharp slowdown in UK GDP growth in the first quarter and, while the services sector does appear to have seen some pick-up in the second quarter, it is clearly firing more intermittently than in 2016.”For related news and features, visit our Enterprise section.Access hundreds of global services and suppliers in our Online Directory  Get access to our free Global Mobility Toolkit

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