UK service sector showed the fastest expansion of activity for five years in July

According to the report from IHS Markit/CIPS, UK service providers reported a strong increase in business activity during July, with the rate of growth the sharpest recorded for five years. New orders also rebounded during the latest survey period, reflecting an improvement in corporate and household spending. Growth was mainly linked to the phased reopening of business operations across the UK economy. Employment was a weak point in July, with staffing numbers falling at a steep and accelerated pace amid concerns of only a partial recovery in longer-term demand from the levels seen prior to the coronavirus disease 2019 (COVID-19) pandemic.

At 56.5 in July, the headline seasonally adjusted UK Services PMI Business Activity Index picked up from 47.1 in June and signalled the fastest pace of expansion since July 2015. The index has risen in each month after reaching a survey-record low of 13.4 in April, but the latest reading was the first to exceed the neutral 50.0 threshold since the pandemic began.

Around 38% of the survey panel reported an increase in business activity during July, while only 24% signalled a decline. The proportion of service providers reporting output growth had previously risen from just 7% in April to 13% in May and 28% in June. Higher levels of business activity were overwhelmingly linked to the easing of lockdown measures and subsequent increase in customer demand. However, survey respondents often noted that output had simply risen from an extremely low base and would take a long time to recover to pre-pandemic levels.

New business volumes meanwhile increased for the first time in five months and at the fastest pace since January. Growth was mostly attributed to reopened business operations and a return of clients from furlough. Around one-third of the survey panel reported a drop in employment, while only 11% signalled a rise. On a more positive note, business expectations rose further in July, with optimism reaching a five-month high amid hopes that easing lockdown measures would deliver a sustained boost to business activity.