Services sector cools in September but remains in growth

The UK services sector grew for the third successive month in September, although the speed slowed following the end of the Government’s Eat Out To Help Out scheme, according to new data.

Chancellor Rishi Sunak’s stamp duty holiday helped, with estate agents and related businesses enjoying strong growth to offset falls elsewhere.

The IHS Markit/CIPS’s closely-followed services purchasing managers’ index (PMI) was 56.1, down from 58.8 in August.

Anything above 50 is considered a sector in growth but, due to the coronavirus restrictions and lockdown, it fell to just 13.4 in April.

Coronavirus – Thu Sep 17, 2020
Coronavirus – Thu Sep 17, 2020

Analysts found that the growth in the sector, which accounts for four-fifths of the economy, was disproportionately hitting consumer-facing firms and benefiting business-to-business companies instead.

Chris Williamson, chief business economist at IHS Markit, which compiles the survey, said: “The UK service sector showed encouraging resilience in September, with business activity continuing to grow solidly despite the Government’s Eat Out To Help Out scheme being withdrawn.

“Unsurprisingly, spending in the restaurant sector slumped after spiking higher in August, and many other consumer services activities showed a similar slide back into contraction as renewed lockdown measures were introduced, causing the overall rate of expansion to moderate.”

He added that optimism for the year ahead had cooled, with signs that businesses are concerned about a second Covid-19 wave and uncertainty over the future trading relationship with the EU next year.

The growth was also stalled by tighter restrictions introduced during the month, and the lack of international tourists is hurting business, the survey added.

Firms said their costs increased for a third successive month to cope with the extra Covid-19 measures, including safety equipment and protection.

Lower employment costs and an increase in customer discounts to drive business were also reported.

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said some industries outperformed others although job losses remain a concern.

“Once again job losses remained the black spot amidst these pockets of recovery. With the seventh consecutive monthly drop in job numbers, redundancies have replaced job hiring in an attempt to shield firms from rising input costs, but these strategies will devastate local communities.”