UK Service Sector Growth Softens In August

The UK service sector expanded at the slowest pace in the current 18-month sequence of growth amid escalating economic uncertainty and concerns about high inflation, final data from S&P Global showed Monday.

The Chartered Institute of Procurement and Supply final services Purchasing Managers’ Index posted 50.9 in August, down from 52.6 in the previous month. The score was well below the flash 52.5.

The composite output index declined to 49.6 in August from 52.1 a month ago. The flash score was 50.9. The index was pulled down by a severe and accelerated drop in manufacturing output.

Although the survey data are currently consistent with the economy contracting at a modest quarterly rate of 0.1 percent, deteriorating trends in order books suggest the incoming prime minister will be dealing with an economy that is facing a heightened risk of recession, a deteriorating labour market and persistent elevated price pressures linked to the soaring cost of energy, said Chris Williamson, chief business economist at S&P Global Market Intelligence.

New business volumes of services firms increased at the slowest pace in 18 months of expansion. The moderate increase in business volume was linked to positive marketing campaigns, the Commonwealth Games in Birmingham and some ongoing benefits related to the post-COVID upturn.

Despite inflation easing slightly to an eight-month low, overall operating costs of service providers rose sharply in August. Firms were forced to pass on higher costs to clients wherever possible. Output price inflation subsequently accelerated slightly since July’s five-month low.

Moreover, demand for staff amongst UK service providers remained resilient, with employment growth once again historically strong. Finally, confidence about the future was again historically subdued.

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