Service sector

UK service sector cools as inflation squeezes consumer demand: reaction

The widely-watched IHS Markit/Cips UK services PMI (purchasing managers’ index) survey scored 53.4 in May, after falling to 58.9 in April.

Any score above 50 denotes growth. However, it was the weakest figure since February 2021 as companies pointed to “weak business and consumer confidence” due to worries about the economic outlook.

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Tim Moore, chief economics officer at S&P Global Market, said: “The May data illustrates a worrying combination of slower growth and higher prices in the UK services sector.

“The latest wave of input cost inflation was the strongest since this index began in July 1996, while the monthly loss of momentum for expanding business activity was a survey record in outside of lockdown periods.”

Service companies surveyed have witnessed “escalating costs for energy, fuel and raw materials”, while wages have also risen. About 70% of businesses reported an increase in their average costs from the previous month.

The May data also highlighted a record increase in prices charged by service providers to customers, which they said affected demand.

In addition, the report signals a slowdown in new order growth in the sector, with the rate of expansion of new business falling to its lowest level since December last year.

Shoppers may have been out in force in many places, including Glasgow, above, but they don’t seem to have spent as much as they used to.

Nevertheless, companies also reported another robust improvement in the workforce for the month.

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: ‘One bright spot was the high employment levels.

“Job seekers always had a choice of group in terms of roles and salaries demanded, but as capacity levels are reached and new order gaps emerge, the window of opportunity begins to close. .

“The sudden drop in the headline index is cause for concern and was reflected in sector optimism, which was at its lowest since the peak of the pandemic in October 2020. Recession fears are growing. stronger.”

Walid Koudmani, chief market analyst at financial brokerage XTB, said: “The negative economic climate has caused growth projections to drop to the lowest since October 2020, while the expansion of business activity has slowed. for the second consecutive month.

“While the main concerns continue to be rising costs and declining purchasing power, potential action by the Bank of England and the government may ease this pressure slightly, but may not have a significant impact. on the long-term situation.

Jackie Mulligan, an expert with the government’s high street task force and founder of ShopAppy, said: “Inflation is decimating consumer demand. We work with and hear from thousands of small independent retailers across the country and many are going through a much tougher time now than during the pandemic.

“It is devastating to see an increasing number of them having to close shop for the last time. It’s not a cost of living crisis, it’s a cost of living disaster.

“Small independent retailers, many of whom have a lot of debt accumulated during the pandemic, are being forced out while they’re down and this time no one is stepping in to help them.”

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