Growth improves in UK service sector but new orders slow to 16-month low

·2 min read

The UK’s services sector saw activity improve last month, although new order growth slowed to a 16-month low as economic uncertainty and inflation are expected to impact spending.

The closely watched S&P Global/Cips UK services PMI survey scored 54.3 in June, as it rebounded from a 53.4 reading in the previous month.

Any score above 50 shows growth in the sector.

Firms reported that activity was buoyed by improved consumer spending on travel, leisure and events at the start of summer.

However, the survey also highlighted reports that customers spent less on discretionary items, largely due to stretched household finances.

Duncan Brock, group director at the Chartered Institute of Procurement & Supply (Cips), said: “The relative calm demonstrated by the slight uplift in the headline figure belies the underlying picture of businesses weighed down by rising costs, the struggle to build operating capacity and a shortage of raw materials caused by war and continuing supply chain disruption.”

About 68% of business said they witnessed a rise in their average cost burdens in June, with this largely blamed on higher energy, fuel and staff wage costs.

Average prices charged by service providers also continued to rise at a rapid pace in June, although they dipped marginally from May’s record high.

Higher inflation and worries about the economic outlook led to hesitancy in relation to new orders during June.

Tim Moore, economics director at S&P Global Market Intelligence, said: “The service sector remained in expansion mode during June, but persistently high inflation has started to dent discretionary spending and negatively influence demand projections across the board.

“New order growth was the weakest since the national lockdown in early-2021, with survey respondents reporting business and consumer hesitancy in response to the uncertain economic outlook.”

Survey respondents also said they saw increased backlogs of work, which were attributed to staff shortages as a lack of candidates to fill vacancies continued to impact business capacity.

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