MNI: UK Services Sector Activity Hits Three Month Low in July

--IHS Markit/CIPS UK Services PMI 53.5 in July vs 55.1 in June

By Jamie Satchi

     LONDON (MNI) - UK services sector activity slipped to a three-month low in

July, making for a disappointing start to the third quarter, with both business

activity and new orders receding on the month, data from IHS Markit/CIPS

released Friday showed.

     The UK Services Purchasing Managers' Index (PMI) fell to 53.5 in July from

55.1 in June, below the MNI median estimate which envisaged a more moderate fall

to 54.6. 

     Despite the slip, the July result marked the 24rd successive month that the

headline index has sat above the 50-mark delineating expansion and contraction.

     --MIXED FORCES AT PLAY

     Culpable for the easing in the headline index was a moderation in both

business activity and incoming new work, both expanding at softer rates versus

their respective June level.

     According to the IHS Markit/CIPS report, activity was both aided and

blighted by the month's somewhat unique set of factors and events.

     While some firms noted that the unusually dry summer had a positive impact

on their sales, specifically those operating in tourism-related industries,

others cited that the hot weather and football World Cup had caused disruption

to business operations or had weighed on customer footfall. 

     Alongside these more temporary factors, some survey respondents noted that

"delayed decision-making and greater risk aversion among clients in response to

Brexit uncertainty had held back new business growth" during the month. 

     --HIRING INTENTIONS DOWN

     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 hardship 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

     --PRICES REMAIN HIGH

     Despite easing from June's nine-month high price pressures remained

elevated across the sector. Some firms noted that intense competition for new

work had restricted their ability to pass on higher costs to clients.

     --BOE GUIDANCE REAFFIRMED

     "The service sector moved back into the slow lane in July as business

activity growth lost momentum for the first time since the start of spring,"

Williamson said. 

     "The combination of slower output growth and softer price pressures during

July will reinforce expectations that any further Bank of England rate rises

will be both gradual and limited," he added. 

     --Q3 PICTURE MIXED

     Friday's survey completes the month's trio of activity sentiment indictors

following the release of the manufacturing and construction PMIs published

earlier in the week, both of which experienced different fortunes.

     The manufacturing PMI settled at 54.0, a three month-low, while the

respective construction index rose sharply to 55.8in July, signalling the

highest rise in output in 14 months.

     While all three measures remain firmly above the neutral-mark, the sharp

decline in the services measure may generate some anxiety after the Bank of

England adjudged the economy to have found its feet in recent months after a

weather-hit Q1. 

     Still, with July subject to more than one one-off factor there is every

chance the PMI could head back towards June's level in August.      

--MNI London Bureau; +44 203-586-2226; email: jamie.satchithanantham@marketnews.com

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

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