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Latest Output Data Shows UK’s Service Sector Struggling

Written by: Keith Tully

Reviewed: Thursday 4th August, 2016

Activity within the UK’s service sector contracted during July after having expanded consistently every month over the course of the past three and a half years.

That’s according to the latest data compiled by Markit in collaboration with the Chartered Institute of Personnel & Supply (CIPS).

In what looks to be a worrying set of numbers for the British economy, output activity and new business creation within the service sector both fell over the course of July at their sharpest pace since March 2009.

The blame for the downturn in activity and output is being laid firmly on the increase of economic and political uncertainty brought about by the UK’s referendum on its membership of the European Union.

“After three-and-a-half years of growth, the services sector returned to contraction as Brexit contagion suppressed new orders and overall output at rates last seen during the financial crisis in 2008-2009,” said David Noble, chief executive of the CIPS.

“The overall rate of retrenchment was the fastest since March 2009, as supply chains were hit by a continuation of muddy business conditions, rises in food and fuel prices and a demand from staff for higher wages to offset the impact of weaker economic conditions,” he said.

Chris Williamson, Markit’s chief economist, noted that the figures on activity within the service sector follow on from the recent bad news that construction sector activity in the UK contracted during July at the fastest rate recorded since 2009.

“It’s too early to say if the surveys will remain in such weak territory in coming months,” he said.

“However, the unprecedented month-on-month drop in the all-sector index has undoubtedly increased the chances of the UK sliding into at least a mild recession.” 

Markit and CIPS’ research suggests that service sector employers were more pessimistic about their prospects last month than has been the case during any month since early 2009.

According to Williamson, a quarter-point reduction in the Bank of England’s base rate of interest now looks like a “forgone conclusion” in light of the latest figures on the UK’s economic position.

“The PMI [purchasing managers’ index] is already deep into territory which would normally spur the Bank of England into taking action to stimulate the economy,” he said.

Keith Tully

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Keith has been involved in Business Rescue since 1992, during which time he’s worked for both independent and national firms. His specialties include company restructuring matters and negotiating with HMRC on his clients behalf.

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