UK Service Sector Moves Closer To Stagnation

UK service sector activity moved closer to stagnation in June on subdued client demand and a further reduction in work-in-hand, data from IHS Markit showed Wednesday.

The IHS Markit/Chartered Institute of Procurement & Supply services Purchasing Managers' Index fell to 50.2 in June from 51.0 in May. This was the lowest reading for three months. Economists had forecast the score to remain unchanged at 51.0.

The reading was only fractionally above the 50.0 no-change mark and therefore signaled that business activity was close to stagnation in June, IHS Markit said.

The weakness in activity was attributed to sluggish domestic economic conditions and greater risk aversion in response to Brexit uncertainty.

New business showed a fractional decline in June. Nonetheless, jobs growth has been recorded in three of the past four months as respondents often link recruitment to long-term business expansion plans.

Service providers remained optimistic overall about their growth prospects for the year ahead, but the degree of confidence weakened in June.

Strong input price inflation was seen in June due to higher transportation costs and wage pressures. However, prices charged by service providers advanced at the second-slowest rate since June 2017.

The composite PMI showed a contraction in the private sector as the marginal increase in services was offset by marked declines in manufacturing and construction output.

The all sector output index fell to 49.2 in June from 50.7 in May. The indicator signaled a reduction in overall private sector business activity for the first time in 35 months.

Andrew Wishart, an economist at Capital Economics, said overall, the economy clearly lost momentum in the second quarter after the pre-Brexit boost in the first quarter. But the economist is more worried that the underlying trend has weakened too.