UK service sector grows as staff numbers jump higher

Britain’s services sector delivered a second consecutive month of growth in May, as new business increased for the first time in 2019.

The IHS Markit/CIPS UK services purchasing managers’ index (PMI) showed a reading of 51 for May, up from 50.4 in April. A figure above 50 indicates growth.

The rise was more than economists had anticipated, with consensus estimates predicting it would move to 50.6 for the month.

It marks continued growth for the services sector after bouncing back from a decline in March, the first contraction in the sector since July 2016.

The recovery of the sector has been supported by an increase in new work received by service sector firms for the first time in five months, the survey revealed.

Staffing levels rebounded in May, with the latest information showing a “modest rate” of job creation, which was the strongest since November 2018.

Higher payroll numbers were linked to long-term business expansion plans and efforts to boost operating capacity.

However, a number of service providers warned that Brexit-related uncertainty had “contributed to subdued business and consumer spending”, according to the report for May.

Input prices continued to rise on higher staff wages and transport costs, while input costs were pushed up by the “weak sterling exchange rate”.

Chris Williamson, chief business economist at IHS Markit, said: “Although service sector business activity gained a little momentum in May, with growth reaching a three-month high, the pace of expansion remained disappointingly muted and failed to offset a marked deterioration in manufacturing performance and a fall in output of the construction industry during the month.

“As a result, the PMI surveys collectively indicated that the UK economy remained close to stagnation midway through the second quarter as a result, registering one of the weakest performances since 2012.”

Duncan Brock, group director at the Chartered Institute of Procurement and Supply, said: “The sector experienced the strongest, albeit still modest improvement in overall activity since February this year after a weak couple of months.

“However, before we bring out the bunting, a reality check is in order, as the underlying figures are still weak.”

Chris Sood-Nicholls, managing director and head of global services at Lloyds Bank Commercial Banking, said: “While a small expansion in the sector is positive, we must be realistic – many services firms remain understandably cautious in the current environment.

“Conserving cash and limiting investment will continue to be priority areas until uncertainty in the market is resolved.

“Employment in business and consumer services continues to grow, fuelled by those sub-sectors that are enjoying continued demand.”