Service sector

UK service sector driven by export sales and new business growth

Prices charged by firms in the service sector rose at a record rate during the period thanks to soaring inflation, rising fuel prices and wage increases. Photo: Stu Forster / Getty

The UK saw a strong recovery in service sector activity in November, spurred by a sharp rise in exports and growth in new businesses.

New business intake picked up for the second consecutive month last month and was the strongest since June.

Export sales have been a key driver of growth in the service economy last month, with looser travel restrictions contributing to the strongest recovery in new business from overseas since March 2017.

Twice as many survey respondents (32%) reported an increase in new orders compared to those who reported a decrease (16%). Service providers highlighted strong spending by businesses and consumers, reflecting improving economic conditions and sustained momentum for reopening.

The latest survey data from IHS Markit showed that its UK services PMI business activity index registered 58.5 in November, little change from the previous flash reading of 58.6, and Down slightly from October three-month high of 59.1. Any reading above 50 indicates growth.

Graphics: IHS Markit, CIPS

Graphics: IHS Markit, CIPS

As a result, output growth in the last quarter of 2021 remains on track to surpass that seen in the third quarter, he said.

IHS added that export sales gained momentum in November, with the growth rate being the highest in more than four and a half years.

However, prices charged by firms in the service sector also rose at a record pace during the period thanks to soaring inflation, rising fuel prices and wage increases.

Prices charged by service providers have also increased at the fastest rate since the start of the investigation in July 1996.

The increase in production costs mainly reflects the increase in operating expenses, according to the report, although some companies said that limited supply and customer focus on delivery schedules helped increase the power of price fixing.

Watch: What is inflation and why is it important?

Staff shortages and supply chain constraints have also dampened business expectations in the service sector. Optimism about growth in business activity was the lowest in 12 months.

“The overall speed of the recovery appears to have accelerated compared to the third quarter of 2021, with production growth primarily driven by services as manufacturers grapple with severe shortages of critical raw materials and components,” said Tim Moore, chief economic officer of IHS Markit. .

“The vast majority of responses to the survey in November were received before the announcement of the Omicron variant, which has the potential to derail near-term growth prospects and add to the disruption of the supply chain. ‘international supply. “

It came as eurozone growth picked up for the first time in four months in November, as the PMI stood at 55.4, down from 54.2 in October.

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Readings for the euro area as a whole showed that private sector economic growth increased last month mainly due to the resilience of the services sector, while manufacturers were held back by persistent supply chain shortages. .

Germany, Europe’s largest economy, however, has lagged behind the rest of the continent.

Growth in the service sector in Spain peaked in three months in November, service activity accelerated to a five-month high in France and Ireland saw the strongest growth despite a trough in seven months.

But the near-term outlook has darkened as a fourth wave of COVID infections led to lower new business inflows while lowering business confidence.

Watch: What we currently know about the omicron COVID-19 variant