Services PMI: The UK’s services sector outperformed expectations last month, though disappointing new work inflows cast a cloud
The UK economy may indeed be on track to rebound in the second quarter of this year, as a closely watched index today revealed that the services sector performed better than expected in May.
The purchasing managers’ index (PMI) for the UK’s services sector, compiled by IHS Markit, rose from 52.8 points in April to 54 in May, comfortably above the consensus forecast of 52.9 and well above the 50 mark which indicates an expansion in the sector.
However, there were clouds cast over the sunnier picture, as the rise in employment numbers and new business proved weak and cost burdens rose sharply.
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“The improvement in service sector activity adds to evidence that the economy is on course to rebound in the second quarter but, like the earlier manufacturing and construction surveys, raises questions about the outlook,” said IHS Markit’s chief business economist, Chris Williamson.
“However, disappointing inflows of new work suggest that growth could wane in coming months as Brexit-related uncertainty continues to weigh on spending decisions and dampen business confidence.
“Measured across all major parts of the economy, new orders growth in the second quarter so far is running at the weakest since the third quarter of 2016.”
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The pound immediately rallied against the dollar to $1.338, having earlier today hit lows of $1.3302.
Tighter labour market conditions, which add pressure on wages and cause recruiting difficulties, were blamed for impacting employment numbers.
Service providers said there was a catch-up from snow-related disruption at the beginning of the year, and improved sales volumes were attributed to competitive pricing strategies, greater business investment and successful new product launches.
However, the relatively weak increase in forward-looking indicators was blamed on subdued consumer spending and Brexit-related concerns among large corporate clients.
“It felt as though the sector was losing its lifeblood this month as Brexit worries continued to claw away at confidence, new orders and business margins,” said Duncan Brock, group director at the Chartered Institute of Procurement & Supply.
“The survey revealed clients and consumers were reluctant to spend, with one of the lowest rises in new orders in the last two years, and though overall activity increased, it was at a restrained pace.”
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