UK service sector shows rapid growth
The UK’s service sector grew rapidly in June to reach an eight-month high, according to latest UK Purchasing Managers’ Index (PMI) survey data.
The IHS Markit/CIPS UK Services PMI Business Activity Index rose to 55.1 in June, up from 54.0 in May, signalling the strongest rate of growth since October 2017.
Many commentators believe the strong service sector growth may encourage the Bank of England to raise interest rates when the Monetary Policy Committee meets in August.
June’s stellar business activity growth was supported by the strongest increase in new work since May 2017.
Survey respondents attribute the growth in new business to successful product launches, new marketing initiatives and improving economic conditions. However, businesses commented that Brexit-related uncertainty continued to hold back business investment.
Employment numbers in the service sector increased only moderately in June, with the rate of job creation holding close to the 13-month low seen in April.
Costs in the service sector continued to rise sharply with many companies blaming rising fuel costs and staff bills.
Chris Williamson, Chief Business Economist at IHS Markit, which compiles the survey commented: “Stronger growth of service sector activity adds to signs that the economy rebounded in the second quarter and opens the door for an August rate hike, especially when viewed alongside the news that inflationary pressures spiked higher.”
“The survey data indicate that the economy likely grew by 0.4% in the second quarter, up from 0.2% in the opening quarter of 2018. The sharp rise in business costs, linked to surging oil prices and the need to offer higher wages, suggests inflation will also pick up again from its current rate of 2.4%.”
“It remains encouraging yet also surprising that current business activity continues to show such resilience amid relatively moribund confidence regarding the year ahead outlook. The survey once again highlights how the business outlook remains clouded by widespread concerns about the impact of Brexit uncertainty in particular.”
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All figures correct as at 30.09.2020.