Orders have almost ground to a halt, according to BDO’s latest Business Trends survey, indicating that the sector is poised to start shrinking.
The downward trend has been happening for a while but has accelerated since the EU referendum, not least because the devaluation of sterling has pushed up inflation which in turn has impacted on consumer spending power.
The inflation index rose above the long-term trend for the tenth month running: it is now at 105.0, up 0.3% from April.
“Business activity in the UK’s services sector is definitely slowing down, with many blaming this on the snap election,” said BDO partner Peter Hemington. “But the downward trend is clearly much more deeply rooted than this.
“Surprisingly, UK businesses remain optimistic about the future, but an immediate recovery seems unlikely.”
Also surprisingly, the manufacturing sector seems to be doing rather well. Its output index went up by 0.6 to 97.7 during May and the sector’s optimism index (how the sector expects order books to grow over the next six months) has gone up to 116.4, the highest it has been for three years.
Hemington urged the new government to announce pro-business measures speedily “to ensure we aren’t left disappointed with an increasingly stagnant economy as we go through the rest of the year”.
The survey covers more than 4,000 respondents from companies employing around five million employees.