UK service sector recovery slows sharply during October

According to the report from IHS Markit/CIPS, October data pointed to a much weaker rise in business activity across the UK service sector, with the rate of expansion the slowest for four months. There were also signs of a sharp reversal in demand conditions, with new work falling for the first time since June. Survey respondents in the hospitality, transport and leisure sectors widely commented on an adverse impact from tightening restrictions on trade due to the coronavirus disease 2019 (COVID-19) pandemic.

Adjusted for seasonal influences, the UK Services PMI Business Activity Index registered 51.4 in October, down sharply from 56.1 in September but slightly above the crucial 50.0 no-change mark. The latest reading was lower than the earlier 'flash' reading for October (52.3) and signalled the weakest service sector performance since June.

Growth was often linked to a continued recovery in business operations after the national lockdown period during the second quarter of 2020 and the restart of work on delayed projects. Some firms cited a boost from higher housing market transactions and a rebound in demand from clients in the construction sector.

In contrast to the upward trend for business activity, latest data indicated a drop in new orders for the first time since June. The rate of decline across the service sector as a whole was modest in comparison to the second quarter of 2020. However, the overall figure masked a slump in demand for customer-facing service providers, especially those in the hotels, restaurants and catering category. 

Service providers are optimistic overall about their prospects for growth in the next 12 months, but the degree of confidence slipped to its lowest since May. Expectations were again contingent on the trajectory of the pandemic and often reflected plans to rebuild business operations when the impact abates.