UK service sector’s activity growth decelerates more than initially estimated in August

The report from IHS Markit and Chartered Institute of Procurement & Supply (CIPS) indicated on Friday that August was the worst month for business activity growth in the UK’s service sector since the current phase of recovery began in March.

According to the report, the Markit/CIPS UK Services Purchasing Managers' Index (PMI) fell to 55.0 in August, which was down from 59.6 in July and the preliminary estimate of 55.5, and well below May's record high of 62.9. This represented the lowest reading since February as well.

Economists had forecast the indicator to stay unrevised at 55.5. The 50 mark divides contraction and expansion.

According to the report, new order growth weakened, partly due to the end of the full stamp duty holiday and a subsequent cooling in consumer demand arising from residential property transactions. Meanwhile, backlogs of work increased solidly, due to staff shortages. The rate of job creation surged higher than the previous record seen in June 2014 and a subsequent lack of candidates to fill vacancies led to steep gains in wages. On the price front, strong pay pressures, growing fuel bills and increasing transport costs were the main factors contributing to higher operating expenses in August. Mirroring the trend for input prices, the prices charged inflation eased only slightly from July's peak.

The UK All Sector Output Index, a weighted average of the UK Manufacturing Output Index, the UK Total Construction Activity Index and the UK Services Business Activity Index, came in at 54.8 in August, down from 59.2 in July. This was the lowest reading for six months.