Yahoo Finance UK services sector flatlines as consumers tighten spending
The UK services sector activity stalled in September as soaring inflation hit household budgets and discretionary spending.
According to S&P Global it was the weakest service sector performance since the national COVID lockdown in February 2021 amid widespread pessimism about the economic outlook.
Its UK services purchasing managers index (PMI) came in at 50.0 during the month, down from 50.9 in August. The reading meant that there has been no expansion but equally no contraction.
“Service providers often noted spending cutbacks among UK households, especially in relation to discretionary services such as hospitality and leisure,” S&P said.
There were also reports that rising business expenses and heightened economic uncertainty had added to demand headwinds.
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Service providers overwhelmingly passed on higher costs to clients, despite signs of weaker demand during September. The rate of prices charged inflation was little-changed since the previous month and still close to the peak seen in May.
The latest survey also pointed to a marginal overall decline in new orders across the service economy, which contrasted with the period of growth seen over the past one-and-a-half years.
Many service providers cited subdued confidence and ongoing cost cutting efforts among clients.
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“This is by no means a positive economic reading,” Joshua Raymond, director at financial brokerage XTB, said. “The immediate market reaction was some small gains in the GBP as in reality the market had expected a faster deterioration in services activity.
“Given that the majority of UK GDP is reliant on UK services activity, we are now starting to see the UK recession become entrenched in UK data sets.”
He added: “Investors have their eyes firmly on the OBR's forecasts against the Truss government's spending plans so we can confidently say that the market reaction to this reading has been somewhat muted.”
Meanwhile, business expectations for the year ahead dropped to the lowest since May 2020, with survey respondents citing the ongoing energy crisis, global recession concerns, and rising interest rates as their biggest concerns.
It was the first time business optimism had weakened since June.
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Export sales also fell in September, which ended an eight month period of growth. Brexit-related trade difficulties and weaker global economic conditions were reported by survey respondents.
However, some firms commented on a boost from exchange rate depreciation, especially in US markets.
September data highlighted another solid rise in employment levels, largely reflecting efforts to align staffing numbers with post-pandemic requirements. The rate of job creation nonetheless eased to its weakest since March 2021.
Around 58% of the survey panel signalled an overall rise in their input prices during September, while only 1% indicated a decline.
In addition to this, Britain suffered its fastest decline in private sector output since January 2021.
The UK Composite PMI index fell to 49.1 in September, down from 49.6 the month before, and further below the 50-point mark showing that activity stagnated. However, the reading was an improvement on a preliminary reading of 48.4.
