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Coronavirus: Services sector recovery slows amid new restrictions

Saleha Riaz
·2-min read
Output growth in the services sector significantly slowed in September, BDO said. Photo: Getty
Output growth in the services sector significantly slowed in September, BDO said. Photo: Getty

UK business recovery is losing momentum as various government measures designed to prevent the spread of the coronavirus, such as the ‘rule of six’ and the 10pm curfew, hit businesses, a report from business advisory firm BDO LLP said.

Output growth in the services sector significantly slowed in September, BDO said.

While September witnessed a fifth consecutive month of output growth since levels plummeted to record lows in April, it marked a marginal rise of just 1.01 points last month, the company explained.

This compares to gains of 6.7 points recorded in July and 11.16 points in June.

BDO’s Output Index - which provides a snapshot of business output by weighting macroeconomic data from the UK’s main business surveys - now stands at 77.95, well below the long-term average of 100.

Many firms also reined in plans for returning to the office in a further blow to industry. BDO’s Services Output Index - which includes hospitality, retail, and financial and professional services - rose by just 0.96 points to 76.32 in September, a sharp deceleration on the significant increases seen during the summer.

READ MORE: UK economy faces 'perfect storm' as winter looms

The slowdown in recovery was also driven by the renewed spread of infections in recent weeks, as consumers become more hesitant to visit restaurants and return to the high street.

BDO’s Employment Index, which it said had remained resilient throughout the pandemic, slipped 0.23 points last month to 109.46. While the labour market has been protected by the Chancellor’s Coronavirus Job Retention Scheme, this slight decrease comes as the government announced plans to taper off its support by replacing the furlough scheme with a new scheme.

Kaley Crossthwaite, Partner at BDO LLP, said: “There remains significant uncertainty over the pace and path of the UK’s economic recovery. The government must perform a delicate balancing act to help mitigate the spread of the ‘second wave’ of the virus, while protecting the small and mid-sized businesses which are the UK’s economic engine.”

READ MORE: What chancellor Rishi Sunak's latest announcements mean

The UK economy was already weak before the pandemic struck and suffered the biggest economic collapse of any developed nation during the crisis.

Data from the Office for National Statistics, published on Friday, showed a nascent recovery from this collapse lost steam in August. GDP grew by just 2.1% in the month, well below economists’ forecasts and down from 8.7% in June.

Watch: What is a V-shaped economic recovery?