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Marginal growth for services in July

Aug 04
Tags: UK: London
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Marginal growth for services in July

The services industry enjoyed marginal growth in July after a four-month low the month before, as employment numbers increased at their fastest pace since the start of 2016.

According to the IHS Markit/CIPS UK Services PMI, there was a sustained increase in business activity across the UK service sector in July, but the rate of expansion remained relatively slow.

This was mostly down to weaker rises in new work, compared to those seen earlier this year, with the latest upturn only slightly stronger than in June.

Regardless, service providers continued to boost their employment numbers following the strongest pace of job creation in 18 months.

Business optimism subdued

The IHS Markit/CIPS Services PMI Business Activity Index climbed to 53.8 in July, from 53.4 in June, to remain above the 50.0 no-change value for 12 months running.

Staff recruitment continued to gain traction, with increased payroll numbers attributed to long-term expansion plans and rising business requirements.

A number of companies say they struggled to fill vacancies with suitably skilled staff, but greater workforce numbers helped to alleviate pressures on operating capacity.

Service providers recorded an accelerated rise in their average cost burdens in July, but it could have been more intense as the rate of input price inflation was softer than the eight-and-a-half-year peak witnessed in February.

Chris Williamson, IHS Markit’s chief business economist, said this survey suggests that businesses remain keen to expand, even in the face of heightened uncertainty, and that the UK is on course for more steady if sluggish expansion in the third quarter.

“While the current picture remained one of an economy showing overall resilience in the face of concerns about the outlook, the subdued level of business optimism suggests it’s likely that growth will at least remain modest and could easily weaken in coming months,” he commented.

Mr Williamson added that the prospects for firms for the coming year have slipped to a level that typically hints that the economy will stall or even contract.

Worryingly mixed bag of results

Duncan Brock, director of customer relationships at the Chartered Institute of Procurement & Supply, went on to note how purchasing managers had blamed continuing ambiguity around Brexit and the concerns about the strength of the economy for the sector’s damp performance, as consumers and businesses alike remained hesitant about spending.

He said: “The relentless burden of inflationary cost pressures made food, energy and salaries more expensive for companies, while consumers could see higher prices gnawing away on household budgets.”

Mr Brock added that there was one good piece of news in that firms now have a stable workforce in place as they seek to increase marketing and business investment despite weaker trading conditions.

He concluded by saying: “Hopes of a stronger performance in the latter half of the year are ebbing away, with business confidence close to its lowest since 2012.

“July’s data has presented a worryingly mixed bag of results, reaffirming the impact economic uncertainty and the weak pound can have.”

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Image: NGUYENNHUDIEP via iStock

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