Services sector growth slows with slumps in hospitality, travel and leisure

The growth of the UK’s services sector slowed in October to a four-month low, with a slump in demand for customer-facing service providers, especially those in the hotels, restaurants and catering category, according to new data.

The closely watched IHS Markit/CIPS Services purchasing managers’ index (PMI) was 51.4 last month, down from 56.1 in September.

Anything above 50 is seen as a sector in growth. It was propped up by the strong housing market as owners took advantage of the stamp duty holiday, generating fees for estate agents.

Tim Moore, economics director at IHS Markit, which compiles the survey, said: “October data indicates that the UK services sector was close to stalling even before the announcement of lockdown 2 in England, with tighter restrictions on hospitality, travel and leisure leading to a slump in demand for consumer-facing businesses.

“This was only partly offset by sustained expansion in areas related to digital services, business-to-business sales and housing market transactions.”

He added: “November’s lockdown in England and a worsening Covid-19 situation across the rest of Europe means that the UK economy seems on course for a double-dip recession this winter and a far more challenging path to recovery in 2021.”

The data, which is collated between October 12 and 28 from interviews with company buyers, is modest compared with the second quarter of 2020.

But the overall figure masked a slump in demand for customer-facing service providers, especially those in the hotels, restaurants and catering category.

Survey respondents overwhelmingly attributed lower new business to the impact of Covid-19 restrictions on trade during October and a subsequent lack of demand for hospitality and leisure services.

Duncan Brock, group director at the Chartered Institute of Procurement & Supply (CIPS), added: “Some supply shortages also continued to bite, resulting in higher business costs.

“These were increasingly difficult to pass on to a reduced pool of customers, as competition intensified and discounting continued.

“Instead, staff headcounts were cut with more businesses resorting to redundancy schemes to keep staff costs low, and total service sector employment dropped for the eighth month in a row.

“Though Government support will continue, this may not be enough for many businesses as large parts of the services sector enter a deep freeze state in November.”