UK services PMI returns to growth but employment a weak spot
The UK services sector grew in July at its fastest pace in five years as the coronavirus lockdown eased, although employment was a weak spot, according to data released on Wednesday.
The IHS/Markit CIPS services purchasing managers’ index rose to 56.5 from 47.1 in June. This marked the fastest pace of expansion since July 2015 but was a touch below expectations and the flash estimate of 56.6.
The services PMI has risen each month since hitting a record low of 13.4 in April, but the latest reading was the first to breach the 50.0 mark that separates contraction from expansion.
Growth was mostly attributed to reopened business operations and a return of clients from furlough as lockdown was eased.
However, staffing numbers fell at "a steep and accelerated pace" amid concerns there would be only a partial recovery in longer-term demand from the levels seen before the Covid-19 pandemic.
Tim Moore, economics director at IHS Markit, said: "UK service providers are starting to see light at the end of the tunnel after a record slump in business activity during the second quarter of 2020. July data revealed the fastest increase in business activity for five years, which adds to signs of recovery across the manufacturing sector this summer.
"Higher levels of service sector output were almost exclusively linked to the reopening of the UK economy after lockdown measures and the subsequent return to work of employees and clients. However, these are still the very early stages of recovery and survey respondents often commented on achieving growth from an exceptionally low base."
Moore also cautioned that weakness in the employment figures was "a cause for concern and likely to hold back the longer-term recovery in business and consumer spending".
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the pick-up in the PMI supports other indicators suggesting that the recovery has gathered some momentum recently, though a V-shaped rebound remains highly unlikely.
He said GDP growth will likely fade in the autumn as job losses accumulate and households maintain a high saving rate.
"Indeed, the composite employment balance of Markit’s survey merely held steady at 39.6 in July, consistent with job losses that will be as least as big as those seen in the 2008-to-09 recession."