Frances Ball 4 Sep 2019 01:17pm

Lowest service sector growth predictions in three years

Research from the Chartered Institute of Procurement and Supply (CIPS) shows a subdued services sector, as economic and political factors take hold

Optimism in the services sector has tumbled rapidly, with businesses reporting the most negative predictions for the coming year since July 2016.

Business activity has remained subdued, reflecting slower increases in both new work and in new hires.

Inevitably, Brexit-related uncertainty has slowed business spending while clients remain cautious.

The survey for CIPS was compiled by IHS Markit. Chris Williamson, IHS Markit’s chief business economist, noted that “business activity in the services sector almost stalled in August.”

“After surveys indicated that both manufacturing and construction remained in deep downturns in August, the lack of any meaningful growth in the service sector raises the likelihood that the UK economy is slipping into a recession. The PMI surveys are so far indicating a 0.1% contraction of GDP in the third quarter,” he added.

“With the exception of the slump in sentiment after the 2016 referendum, August saw service sector firms at their gloomiest since the height of the global financial crisis in early 2009,” he pointed out.

The weak sterling exchange rate gave some businesses respite with a boost tin their overseas sales, but at the same time some European clients have drawn back from committing to new business while the political climate is still so fraught.

CIPS noted that backlogs of work were reduced for the eleventh successive month, in the longest period of decline since 2011/12.

Weak business growth has reduced the pressure on service capacity, although there remains such intense competition for new work that service providers have increased their charges at the slowest pace in three years.

Duncan Brock, group director at CIPS, commented, “All these forces combined, was a blow to confidence, as future business expectations from service companies fell to July 2016 levels. There’s only so much companies can do to absorb costs before UK consumers notice the impact to their wallets, and only so much Brexit indecision the sector can take before it is tipped into contraction.”