Services recover despite ‘mixed economic signals’

Output in the service sector began to creep forward again in September, despite news that business growth has slowed. Concerns remain that growth in the UK will remain lethargic in the coming months.

Service sector growth improves
The UK’s all-important services sector bounced back in September with activity exceeding economists’ expectations, according to a new index.

UK service output spikes as business growth dips

Output in the sector, which accounts for more than three-quarters of the UK’s GDP, dipped to an 11-month low in August with a reading of 53.2 on the Markit/CIPS services purchasing managers’ index (PMI). Analysts had expected a similar reading for September but, in fact, the figure rose to 53.6 on an index where a reading over 50 represents expansion.Chris Sood-Nicholls, managing director and head of global services at Lloyds Bank Commercial Banking, said the increase in the headline PMI figure was encouraging “particularly given a backdrop of mixed economic signals”.He added, “The sector still faces a period of uncertainty surrounding Brexit, a sentiment echoed in Moody’s recent decision to downgrade the UK’s credit rating to Aa2 from Aa1. Those consumer-facing parts of the sector will also be mindful of the potential for an interest rate rise in the coming months, particularly as we head into one of the busiest trading periods of the year.”
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James Smith, economist at ING, expressed concern over the fact new business growth cooled last month, “At 53.6, the UK services PMI was a little better than hoped. But dig a little deeper and the key take-away for us was the fact new business growth is at a 13-month low.“With the current PMI roughly indicating growth in the 0.3 per cent region, this latter point means that growth over the next couple of quarters could be equally as sluggish. Once again, political uncertainty was a key factor in holding back growth.“It is possible that we see some recovery over the next few months; the fact that the UK government is more united behind the idea of a transition period could help unlock some short-term investment. But a lack of full agreement on the terms or length of such an arrangement, or indeed the ultimate Brexit deal, is likely to keep businesses cautious.”

Service sector expansion expected to continue

Chris Williamson, chief business economist at IHS Markit, said, “The services sector saw another month of modest growth, running in the middle ground between the robust expansion seen in manufacturing and the contraction recorded in construction.“The three PMI surveys put the economy on course for another subdued 0.3 per cent expansion in the third quarter, but the fourth quarter could see even slower growth.“Across all three sectors, inflows of new business in September were the lowest for 13 months, and business optimism about the year ahead slipped lower.“Higher costs meanwhile led to the largest monthly rise in average prices charged for goods and services since April, meaning consumer price inflation could rise above three per cent in coming months.“The surveys, therefore, portray an economy struggling with the unwelcome combination of sluggish growth and rising prices, presenting a dilemma for policymakers.“The rise in price pressures will pour further fuel on expectations that the Bank of England will soon follow-up on its increasingly hawkish rhetoric and hike interest rates.“However, the decision is likely to be a difficult one, as the waning of the all-sector PMI in September pushes the surveys slightly further into territory that would normally be associated with the central bank loosening rather than tightening policy.”For related news and features, visit our Enterprise section.Relocate’s new Global Mobility Toolkit provides free information, practical advice and support for HR, global mobility managers and global teams operating overseas.Access hundreds of global services and suppliers in our Online DirectoryClick to get to the Relocate Global Online Directory  

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