UK: severe downturn in service sector activity continues in May

According to the report from IHS Markit/CIPS, UK service providers signalled a steep reduction in business activity during May, which was again almost exclusively linked to a slump in business and consumer spending amid the coronavirus disease 2019 (COVID-19) pandemic. The rate of decline in service sector output moderated from April's survey record, but was still faster than at any other time since the survey began in July 1996.

At 29.0 in May, the headline seasonally adjusted UK Services PMI Business Activity Index remained well below the 50.0 mark that separates expansion from contraction, but rose slightly from the earlier 'flash' estimate of 27.8. The latest reading was also up from 13.4 in April, to signal a slower pace of decline than in the previous month.

Just over half of the survey panel (54%) reported a drop in business activity during May, while only 13% signalled an increase. Those indicating a decrease in output since April often commented on a severe lack of new business to replace work that had been completed after the lockdown, following deep cutbacks to corporate spending in response to the COVID-19 pandemic.

There were some reports that the gradual reopening of the UK economy, especially the construction sector, had a positive impact on client demand. Other service providers commented on a tentative revival in business conditions following the initial shock of the lockdown period. May data pointed to a further sharp drop in total new work received by service sector companies, although the rate of contraction eased from April's survey record. Lower volumes of new business were often attributed to the cancellation of new projects, customer closures and constrained sales operations with staff placed on furlough. New export work also fell rapidly in May, despite sporadic reports of rising demand in the Asia-Pacific region and new online sales initiatives. Moreover, a number of service providers noted that they had ceased taking any new work from abroad due to severe restrictions on international travel during the COVID-19 pandemic.

At 30.0 in May, the IHS Markit/CIPS UK Composite Output Index was entrenched below the 50.0 no-change mark, but picked up from April's record low of 13.8. The final index reading was also marginally higher than the earlier 'flash' estimate of 28.9 in May.