Service sector growth slows in May
There was a renewed slowdown in business activity growth across the UK service economy during May, following the four-month peak achieved in April.
The latest UK Services Purchasing Managers’ Index from IHS Markit and the Chartered Institute of Procurement & Supply notes that this partly reflected a softer pace of new order growth, which survey respondents linked to squeezed household budgets and, in some cases, delayed decision-making among clients ahead of the general election.
The headline seasonally adjusted IHS Markit/CIPS Services PMI Business Activity Index registered 53.8 in May, remaining above the 50.0 no-change value for the tenth consecutive month. However, the index dropped from 55.8 in April and signalled the slowest expansion of service sector output since February.
Service providers indicated a further solid upturn in new business volumes, but the rate of expansion was the least marked for three months.
The rate of employment growth across the service sector was little-changed since April, albeit still modest in comparison to the post-crisis peak seen in mid-2014. After a brief pause in staff hiring last July, service providers have now reported 10 months of sustained job creation. The latest rise was linked to new project starts and efforts to boost operating capacity. Although only modest, the latest data pointed to the fastest rise in backlogs of work since November 2016.
Looking ahead, service sector firms are relatively upbeat about their growth prospects, with about 44% expecting a rise in business activity over the year ahead and only 8% anticipating a decline. Business optimism was linked to new product initiatives, hopes of a resilient UK economic backdrop and rising demand from overseas clients.
Meanwhile, survey data for May revealed another slowdown in input cost inflation from the peak seen in February. Where a rise in input prices was reported, this was attributed to higher staff salaries and an across-the-board increase in prices charged by suppliers. At the same time, strong competition for new work and softer rates of input cost inflation led to the weakest rise in prices charged by service sector firms since November 2016.