UK Service Sector Growth Moderates In September

UK Service Sector Growth Moderates In September

British service sector growth remained strong in September, but the pace of expansion eased moderately since August, survey data from IHS Markit showed Wednesday.

The IHS Markit/Chartered Institute of Procurement & Supply services Purchasing Managers’ Index dropped to 53.9 in September from 54.3 in August. The score was also below the forecast of 54.0.

However, any reading above 50 indicates expansion in the sector.

New order growth eased marginally in September reflecting softer trends in business activity. But a number of firms suggested that political uncertainty had weighed on business confidence and been a factor behind tighter budget setting among clients.

The increase in new work resulted in accumulation of unfinished business. Backlogs of work increased in each of the past five months.

Data showed that employment showed a moderate increase in September, with the rate of job creation the strongest since February. Tight labor market conditions led to difficulties in filling vacancies and often pushed up starting salaries.

On the price front, cost burdens rose sharply in September, driven by higher wage bills and rising fuel prices. The overall rate of input price inflation was the fastest for three months and well above the low seen in February.

However, prices charged by service providers increased at only a moderate pace, with the latest rise the slowest for just over one year.

According to British Retail Consortium, UK shop prices increased for the second consecutive month in September after five years of deflation. The shop price index climbed 0.2 percent year-on-year in September, following a 0.1 percent rise in August.

Service sector companies reported a slight upturn in confidence regarding the business outlook, although the degree of optimism remained subdued in comparison to the survey average, IHS Markit said.

Some companies cited hopes of a boost to activity from pent up client demand following the conclusion of Brexit negotiations.

Brexit worries continue to dominate the outlook, however, keeping business optimism firmly anchored at levels which would normally be indicative of an imminent slowdown, Chris Williamson, the chief business economist at IHS Markit, said.

Clarity on Brexit arrangements is therefore needed as soon as possible to help sustain growth, Williamson added.

Thomas Pugh, an economist at Capital Economics, said the upshot is that the survey gives more confidence that the rebound in GDP growth in the second quarter has been sustained in third quarter and has even accelerated slightly.

The economy had expanded 0.4 percent in the second quarter. The British Chambers of Commerce forecast 1.1 percent GDP growth this year and 1.3 percent in 2019.

by RTTNews Staff Writer

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