Jessica Fino 5 Jun 2017 03:05pm

Services sector growth slows as household budgets squeeze

Business activity in the sector has risen at its weakest pace since February, following a four-month peak recorded in April

According to HIS Markit and the Chartered Institute of Procurement & Supply (CIPS), who supplied the data, this was due to a slowdown in new orders growth. This, they argue, is explained by the squeezed household budgets and delayed decision-making among clients ahead of this week’s elections.

The purchasing managers’ index (PMI) business activity stood at 53.8 in May, down from 55.8 in April.

The data also pointed to the fastest rise in backlogs of work since November 2016, with service providers reporting ten months of sustained job creation.

Chris Williamson, chief business economist at HIS Markit, said, “Despite slower growth in May, the surveys indicate that the economy has regained some momentum in the second quarter.

“Optimism about the year ahead is running below the long-run average, weighed down principally by concerns over Brexit, political uncertainty and weaker spending by households.

“Continuing the trend seen in recent months, consumer focusing businesses are reporting the slowest growth. However, the latest survey data also showed that input cost pressures have eased, suggesting consumer price inflation may likewise cool later this year, alleviating some of the squeeze on household budgets from higher prices.”

Duncan Brock, director of customer relationships at CIPS, said the data revealed a “fragility out of sync” with the other sectors.

“Though optimism for the future was slightly elevated compared to April, an overall weakening since the start of 2017 shows how vulnerable the sector can be under pressure as a new government waits in the wings,” Brock added.

Meanwhile, a separate composite PMI showed economic growth in the eurozone continues to run at its quickest pace in six years, with France, Germany and Spain recording the fastest growth.

The PMI composite output index in the eurozone was at 56.8, the same as one month earlier.

The expansion was driven by strong growth of incoming new business, with new orders increasing at an identical pace to April.

Moreover, optimism about the next 12 months rose to its highest level since July 2012, when Markit started collecting services data.