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UK PMI - Service sector growth accelerates in October

Thursday, November 03, 2016

Markit/CIPS UK Manufacturing PMI®

- Activity and new business both rise at strongest rates since January

- Strongest input price inflation since March 2011

- Charge inflation at five-and-a-half year record

The latest PMI® survey data from IHS Markit and CIPS signalled that the dominant UK service sector moved up a gear at the start of the final quarter of 2016.

The rate of growth of total business activity accelerated to the fastest since January, as did new business expansion. The sector continued to generate more jobs, albeit at a weaker rate than the average seen over the past three years. Latest data also revealed a marked build up of inflationary pressures in the sector, linked to the weak pound.

The survey’s headline figure is the seasonally adjusted Markit/CIPS Services PMI Business Activity Index, a single-figure measure designed to track changes in total activity. Readings above 50.0 signal growth compared with the previous month, and below 50.0 contraction. The UK Services Business Activity Index remained above the no-change mark of 50.0 for the third consecutive month in October, indicating a continued recovery in growth following a contraction in July linked to the EU referendum. Moreover, the Index rose to 54.5, from 52.6, signalling the fastest expansion since January.

Faster growth of total business activity was driven by a stronger expansion of incoming new business. New contracts rose at the fastest rate in nine months. Firms linked new work to new business opportunities, rising international demand linked to the weaker pound, improving market confidence and promotional campaigns.

Service providers in the UK continued to add to their workforces in October. Employment increased for the third month running, albeit with the rate of job creation remaining well below the marked rates achieved in 2014 and 2015. The survey also showed that a weak pound drove a marked intensification of cost pressures at service providers in October. Input price inflation surged to the highest since March 2011, with a survey-record month-on-month acceleration. Aside from currency weakness in general, firms linked higher costs to fuel, salaries and food prices.

Subsequently, service providers increased their charges at the fastest rate since April 2011. Business expectations continued to recover from July’s near seven-and-a-half year low in October. Sentiment was the strongest since May, linked to new business opportunities (including export business), marketing, investments, new products and a general improvement in confidence.

David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply: “Though weaker than the 20-year survey average, growth of overall activity sped up to its highest since January this year. Concerns over the EU referendum result showed some signs of dissipating as respondents commented on a refocus on opportunities and ramped up marketing and sales promotions.

“However, business optimism remained lukewarm in spite of the spike in new orders and was below the long-term average of the survey’s history. Staffing levels showed a moderate improvement but at weaker levels than seen over the past three years.

“The exchange rate on the pound continued to be a blessing and a curse as opportunities for more export-related activity such as tourism improved. On the other hand, input price inflation accelerated to a level not seen since March 2011 as healthy margins were challenged. Higher food and fuel prices were highlighted.

“Businesses passed on these costs to consumers as the rate of charge inflation gathered speed to its fastest level since April 2011. Higher costs for food and cars were reported and are likely to have a further impact on the growth of the UK economy as the months of uncertainty around the referendum bear down on the sector.”

For industry comments, please call: CIPS Trudy Salandiak Tel: +44 1780 761576 Email: trudy.salandiak@cips.org