UK services see biggest growth in five years

The UK's services sector, which accounts for more than three-quarters of the nation's GDP, continued its revival last month, recording the sharpest rise in business activity in more than five years. What has caused the latest UK growth?

David Sapsted

3 September 2020

A rise in consumer spending and an increase in business activity after the coronavirus lockdown were primarily responsible for the IHS Markit purchasing managers’ index (PMI) for the sector rising to 58.8 in August - the highest level since April 2015 and a massive improvement on the record low of 13.4 in April this year.The UK performance was markedly better than that recorded by services in the eurozone where the IHS Markit PMI fell to 50.5 last month from 54.7 in July, in an index where a reading below 50 represents contraction.Chris Williamson, chief business economist at IHS Markit, said, "Service sector companies across the eurozone saw growth of business activity grind almost to a halt in August, fuelling worries that the post-lockdown rebound has started to fade amid ongoing social distancing restrictions linked to Covid-19."

Job losses in the consumer sub-sector, especially retail, but a pick-up in business for the professional services sub-sector

The downside to the expansion in the UK was the number of job losses in the consumer sub-sector, particularly in retailing. A third of survey respondents reported a drop in staffing levels during August, while only 11% reported a rise.Meanwhile, the business and professional services sub-sector reported a pick-up in business. "“A further surge in service sector business activity in August adds to signs that the economy is enjoying a mini-boom as business reopens after the lockdowns, but the concern is that the rebound will fade as quickly as it appeared,” said Mr Williamson.Duncan Brock, group director at the Chartered Institute of Procurement & Supply, added, "As the UK economy continues to wake from its pandemic slumber, the services sector reported a higher than expected rise in new orders and at the strongest levels since December 2016."Buoyed up by increased consumer spending from domestic markets and unfettered by lockdown measures, businesses continued to be optimistic even though obstacles to stronger growth lingered on."Export business remained subdued as overseas sales declined for the seventh month in a row, hampered by unsettled supply chains and continuing restrictions on logistics and travel."The distressing employment numbers also darkened the mood with a high number of job cuts this month. Government support was a blessing to many firms but as this comes to an end, many service providers are resorting to redundancy schemes under the weight of operating in a tough marketplace."

Amazon to create 7,000 new UK jobs in 2020

Ironically, publication on Thursday of the PMI's estimates on job cuts in the services sector coincided with an announcement by Amazon that it will create a further 7,000 UK jobs this year, in addition to the 3,000 already added in 2020.Amazon said it was recruiting at more than 50 sites with new roles including engineers, graduates, human resources, IT, health and safety, and finance specialists, in addition to shop-floor teams to pick, pack and ship customer orders.Business Secretary Alok Sharma said the pandemic had represented a "challenging time for many businesses" but that the announcement of the new Amazon jobs was "hugely encouraging".