UK services PMI beats views but new business growth at 13-month low
Activity in the UK services sector unexpectedly improved in September but new business growth fell to a 13-month low, according to a survey released on Wednesday.
The Markit/CIPS services purchasing managers' business activity index rose to 53.6 from an 11-month low of 53.2 in August, beating expectations for it to remain unchanged.
A reading above 50 indicates expansion, while a reading below signals contraction.
Survey respondents highlighted healthy labour market conditions and resilient consumer spending, but there were also reports that worries about the business outlook had acted as a growth headwind. In addition, service providers noted subdued business-to-business sales and delayed decision-making on large projects due to Brexit-related uncertainty, while operating expenses jumped.
New business volumes expanded at the slowest pace since August 2016 and optimism about year-ahead growth prospects remained close to its weakest level since the end of 2011.
Chris Williamson, chief business economist at IHS Markit, said the manufacturing, construction and services surveys released this week portray an economy struggling with sluggish growth and rising prices.
"The rise in price pressures will pour further fuel on expectations that the Bank of England will soon follow-up on its increasingly hawkish rhetoric and hike interest rates. However, the decision is likely to be a difficult one, as the waning of the all-sector PMI in September pushes the surveys slightly further into territory that would normally be associated with the central bank loosening rather than tightening policy.”
Earlier this week, manufacturing and construction PMIs missed expectations, sparking concerns that the economy would struggle to cope if the BoE hiked rates by the end of the year as it has suggested.
The Markit/CIPS manufacturing PMI fell to 55.9 in September from August's four-month high of 56.7, missing economists' expectations for a smaller decline to 56.4, with growth slower across the consumer, intermediate and investment goods industries.
Still the index remained about the 50 mark that separates contraction from expansion and its long-run average of 51.7.
Meanwhile, the construction PMI showed activity declined for the first time in 13 months in September, with "fragile" client confidence and a lack of new infrastructure projects hitting new business volumes.
The UK Markit/CIPS construction purchasing managers' index fell to 48.1 from the previous month's 51.1, with the consensus forecast expecting a smaller drop to 50.8.
The pound gained after the services data, ticking up 0.3% to 1.3279 versus the dollar.
Pantheon Macroeconomics analyst Samuel Tombs said the survey indicates the sector is still in a rut, casting doubt over whether the MPC will press ahead with a rate rise "over the coming months".
"The average level of the services PMI in Q3 is consistent with quarter-on-quarter growth in services output of about 0.3%. Official data up to July also suggest that growth likely slowed slightly from Q2’s 0.4% rate in Q3. Looking ahead, the fall in the new orders index to a 13-month low of 53.3, from 54.2 in August, suggests that growth will slow a little further in Q4."