WORRIES over Brexit and subdued consumer spending weighed on new business inflows for UK services companies in May, a survey signals.
The Chartered Institute of Procurement & Supply’s latest survey of UK services shows the sector’s growth accelerated modestly in May to its fastest pace in three months. CIPS’s headline business activity index for services rose from 52.8 in April to 54.0 last month on a seasonally adjusted basis, moving further above the 50 no-change mark to signal the fastest pace of expansion since February.
However, while there was a marginal acceleration in new business growth in May, with this index edging up from 52.9 in April to 53.1, CIPS highlighted the fact that the increase recorded last month was still one of the weakest since the summer of 2016.
It said: “Reports from survey respondents suggested that subdued consumer spending and Brexit-related concerns among large corporate clients had weighed on new business growth in May.”
CIPS added: “There were a number of reports that consumer spending remained relatively weak, particularly in relation to non-essential purchases. Some service sector firms also commented that Brexit-related concerns had led to delayed decision-making among large corporate clients.”
Employment growth in services in May was only slightly stronger than in April, when it was at its weakest in 13 months, the survey shows. Skills shortages and caution among firms on the recruitment front, against a backdrop of uncertainty, were highlighted as factors.
CIPS said: “Some panel members linked weaker job creation to more cautious staff hiring plans, partly reflecting heightened economic uncertainty.”
Services companies’ costs showed a sharp increase, reflecting higher fuel bills and rising pay. And firms’ confidence about their prospects for increased activity on a 12-month view fell for the third time in four months.
Howard Archer, chief economic adviser to the EY ITEM Club think-tank, said the survey pointed to a “mixed and unconvincing” performance by the services sector.
While noting services growth was the fastest in three months, he added: “Tepid new business growth, reduced confidence and an increased squeeze on margins maintain concern about the outlook.”
Chris Williamson, chief business economist at survey compiler IHS Markit, noted CIPS’s reports on UK services, construction and manufacturing activity together pointed to growth of around 0.3% to 0.4% in the second quarter.
While ahead of UK expansion of 0.1% in the first quarter, the projected growth rate for the three months to June is weak by historical standards.
CIPS director Duncan Brock said: “It felt as though the sector was losing its lifeblood this month as Brexit worries continued to claw away at confidence, new orders and business margins. The survey revealed clients and consumers were reluctant to spend, with one of the lowest rises in new orders in the last two years, and, though overall activity increased, it was at a restrained pace.”
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules here