MNI DATA ANALYSIS: UK Services Sector Activity Picks Up In Aug

--IHS Markit/CIPS UK Services PMI 54.3 in August vs 53.5 in July

By Jai Lakhani

     LONDON (MNI) - UK services sector activity picked up pace in August, with

strong gains seen in business activity and new work, data from IHS Markit/CIPS

showed Wednesday.

     The IHS Markit/CIPS UK Services Purchasing Managers' Index (PMI) rose to

54.3 in August from 53.5 in July, slightly above the MNI median of 54.0. The

rise marked the 25th successive month the headline index is above the 50-mark

delineating expansion and contraction. 

     --MIXED FORCES

     The headline index was underpinned by strong growth in both business

activity and incoming new work relative to July. Improving business conditions

also underpinned a rebound in employment growth, rising at the fastest pace in

six months. 

     According to the IHS Markit/CIPS report, whilst August activity was strong,

many survey respondents noted that the lack of suitably skilled candidates for

vacancies held back staff hiring, constraining expansion plans. 

     Business confidence for the year ahead dropped to its lowest level since

March. This stemmed from political uncertainty and the inability to measure the

impact of Brexit on clients' business operations.

     The impact of Brexit uncertainty on the future outlook also had a knock-on

effect to incoming new work. Whilst incoming new work was strong relative to a

weak July reading, it was still softer than the recent trend level. 

     --HIRING INTENTIONS UP

     Employment growth was the fastest since February, reflecting the need to

meet the increased demand. However, the tight labour market meant growth was

still constrained during the month of August. 

     Employment growth eased to its weakest level since August 2016, with slower

job creation and matching rates attributed to a range of outcomes -- a tight

labour market while some service sector firms relayed long-term intentions to

"automate business processes and maintain service levels with lower headcounts".

     One upside of firm's recruiting problems was that there were signs it was

delivering productivity gains.  

     "Survey respondents are increasingly citing worries about the availability

of suitably skilled candidates to fill vacancies, although this is also helping

drive efforts to boost productivity across the service sector," said Chris

Williamson, Chief Business Economist at IHS Markit

     --INPUT COST PRESSURES

     As a result of ongoing hiring difficulties, salary payments were higher in

August. There was also comments by survey respondents regarding higher fuel

costs and increased energy prices. However, cost-pass through was limited due to

intense competitive pressures. This resulted in charged inflation remaining well

below the peak seen in November 2017.  

     --ON TRACK FOR Q3 GROWTH

     "Faster service sector growth comes as much-needed welcome news after

disappointing manufacturing and construction PMI surveys in August. The survey

data indicate that the economy is on course to expand by 0.4% in the third

quarter, a relatively robust and resilient rate of expansion that will no doubt

draw some sights of relief at the Bank of England after the first rate hike

earlier in the month," said Chris Williamson, Chief Business Economist at IHS

Markit. 

--MNI London Bureau; +44 203 865 3828; email: jai.lakhani@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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