UK service sector growth eases to 18-month low in August

by | Sep 5, 2022

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Growth in the UK services sector eased to an 18-month low in August, according to a survey released on Monday.
The S&P Global/CIPS purchasing managers’ index for the sector fell to 50.9 from 52.6 in July. This was above the 50.0 mark that separates contraction from expansion, but below the flash estimate and consensus of 52.5.

The survey found that although sales continued to rise, growth was only modest amid growing economic uncertainty, reduced client confidence and worries over high inflation.

S&P Global/CIPS said cost pressures remain extremely elevated due to rising energy, fuel, and utility bills, with confidence about the future again historically subdued.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “UK private sector business activity fell for the first time in a year-and-a-half in August as an increasingly severe downturn in manufacturing was accompanied by a near-stalling of the vast services sector.

“Demand for consumer facing services such as restaurants, hotels, travel and other recreational activities is collapsing under the weight of the cost-of-living crisis, with demand for business services also coming under pressure amid concerns over rising costs and the darkening economic outlook. Financial services firms are meanwhile reporting subdued trading amid the recent hikes in interest rates, adding to an increasingly broad-based malaise across the economy.”

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The latest PMI data signal that the economy is on the brink of a recession.

“The services PMI fell to its lowest level since February 2021, and likely is consistent with overall services output flatlining, given its exclusion of public sector activities- which likely fell again due to the winding-down of Covid testing and vaccinations- and the tendency for the PMI to give an overly upbeat steer on growth in real GDP when inflation is high.”

Martin Beck, chief economic advisor to the EY Item Club, said: “Although August’s UK S&P Global/CIPS services survey signalled further expansion in the economy’s biggest sector, growth was marginal, and private sector activity stagnated. Overall, cost and price growth remained strong.

“Under normal circumstances, this combination might give the Bank of England cause to take a more dovish attitude to rate increases. But with the prospective peak for inflation being driven higher by increasing energy prices and the likelihood of a big fiscal support package under a new prime minister, the EY ITEM Club does not anticipate a change in monetary policy currently.”

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