Services sector remains in ‘severe’ downturn but contracts at slower pace

Activity in the UK’s all-important services sector contracted at a slower pace in May but remained under severe pressure despite some lockdown restrictions easing, according to a report.

The closely-watched IHS Markit/CIPS Services purchasing managers’ index (PMI) rose to 29 last month from an all-time low of 13.4 in April, but the rate of decline in output was still the fastest since records began in 1996.

A score above 50 means the sector – the biggest in the UK economy – is growing but anything below 50 means it is shrinking.

The reading was slightly better than feared and better than the earlier so-called flash PMI estimate, but gives an all-sector composite reading of 30 – signalling another cliff-edge plunge in the wider economy last month.

The report said that while the gradual reopening of some sectors, in particular construction, helped boost client demand, many firms have had to remain shut amid the lockdown and consumer-facing businesses are among the hardest hit.

Tim Moore, economics director at survey compiler IHS Markit, said: “The Covid-19 pandemic continued to have a severe impact on UK service sector activity in May, despite a boost in some areas from the gradual easing of lockdown measures.”

He added: “Service providers recorded another modest improvement in their business expectations from the low point seen in March, with some hopeful that the reopening of clients’ business operations would start to boost activity in the coming months.

“However, customer-facing businesses continue to report extreme levels of concern about their near-term prospects, with efforts to adapt to social distancing measures set to hold back capacity and generate a sharp increase in costs.”