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Weakest expansion of UK service sector activity since March

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Staff Writer | Tuesday November 6, 2018 3:31AM ET
UK
Britain   Intense pressure on operating margins persisted in October

UK service providers signalled another increase in business activity during October, but the rate of expansion eased to its weakest since the snowrelated soft patch seen in March.


The loss of momentum largely reflected more cautious spending patterns among clients, as highlighted by the weakest upturn in new work since July 2016.

Higher fuel bills and salary payments meanwhile contributed to the fastest rise in average cost burdens since June.

Intense pressure on operating margins persisted in October, despite the rate of prices charged inflation picking up slightly from September’s 15-month low.

The seasonally adjusted IHS Markit/CIPS UK Services PMI Business Activity Index dropped to 52.2 in October from 53.9 in September, to signal the slowest rate of business activity expansion since March.

The headline index has posted above the 50.0 no-change value in each of the past 27 months, but the latest reading was the secondlowest since July 2016.

Survey respondents noted that heightened economic uncertainty and a soft patch for new work had held back business activity growth.

New business growth moderated for the third time in the past four months during October.

Moreover, the latest rise in new work was only modest and the weakest recorded since July 2016.

A number of firms noted that Brexit-related uncertainty and concerns about the global economic outlook had constrained demand growth for business services.

Some survey respondents also commented on subdued consumer spending in October.

Consumer-facing sectors such as hotels, restaurants and leisure reported the weakest performance.

Slower new business growth helped to alleviate pressures on operating capacity during October.

This was highlighted by a reduction in backlogs of work for the first time since April.

Meanwhile, a moderate rate of job creation continued across the service sector.

Anecdotal evidence suggested that a lack of suitably skilled candidates to fill vacancies had held back employment growth.

October data pointed to another sharp increase in input prices, which was mainly linked to higher transport costs and rising staff wages.

Survey respondents also cited increasing prices for items sourced from abroad, which was linked to the weak sterling exchange rate.

Higher operating expenses led to the fastest rise in prices charged by service sector firms since June.

Looking ahead, the latest survey indicated a moderation in confidence about the outlook for business activity growth.

The degree of positive sentiment about the year ahead was the weakest since July 2016.

While some firms reported improved optimism on the basis that business investment and client confidence would likely pick up in response to clarity about Brexit outcomes, many others saw a deepening malaise due to Brexit-related disruptions and wider concerns about the general economic outlook.

 

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