UK service sector remains in growth territory

By SCOTT REID
Published on 07/06/2012 10:05

Britain’s powerhouse services sector continued to grow at a steady pace in May, a key report today revealed, confounding analysts’ expectations for a slowdown.

The headline activity index for the latest Markit/Cips purchasing managers’ survey read 53.3 for May, the same as in April and above expectations for a dip to 52.5.

A breakdown of the data painted a mixed picture, however. Although the new business index rose to 54.8, its highest reading since January, business expectations were at their lowest since December as firms fretted about public sector spending cuts and the eurozone debt crisis.

While the headline activity index remained above the 50 level that separates expansion from contraction, it is still three to four points below its long-run average before the financial crisis.

Richard Driver, analyst for Caxton FX, the foreign exchange company, said: “This morning’s figure from the UK services sector is solid but it’s certainly nothing to get too excited about.

“Nonetheless, it is a relief to see that the UK services sector is firmly in expansion territory, even if the UK economy as a whole is contracting slightly.

“These PMI surveys have however lost a little bit of credibility given the positive surveys that characterised Q1, only for a -0.3 per cent GDP figure to be announced.”

He added: “Warmer weather and increased expectations for activity relating to the Jubilee and the Olympics helped stave off a services decline in May but weakness in the UK manufacturing sector remains the major concern with respect to the UK economy at present.”

Howard Archer, chief UK economist at IHS Global Insight, the forecasting group, said: “While the service sector does appear to be growing modestly, its upside is currently being limited by difficult conditions in the private sector as well as by cutbacks in government spending.

“Meanwhile, many consumer-facing services companies are still being handicapped by the squeeze on consumer’s purchasing power and their need/desire to limit their discretionary spending.”