UK services sector gauge picks up but economic gloom continues
A closely watched gauge of the UK services sector picked up in May, although the dominant section of the economy remained severely depressed as coronavirus restrictions were largely held in place.
The IHS Markit/Cips services purchasing managers’ index (PMI) came in at 29 in May, up from the record low of 13.4 in April. Today’s reading also beat an earlier estimate for May of 27.8.
Nonetheless, a score below 50 traditionally indicates that the services sector contracted compared to the month earlier. “But in practice, the index is excessively influenced by general levels of business sentiment,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.
“The Covid-19 pandemic continued to have a severe impact on UK service sector activity in May,” said Tim Moore, economics director at data firm IHS Markit. He said this was “despite a boost in some areas from the gradual easing of lockdown measures”.
It came as the UK government continued to gradually lift coronavirus lockdown measures. Schools and some markets reopened on Monday. More non-essential retailers are scheduled to reopen in the middle of the month.
Yet worryingly for policymakers, the index measuring business expectations for the year ahead remained very subdued in May.
UK firms cut jobs at the second-fastest rate since the survey began in 1996 as coronavirus continued to bite. Many firms have used government support to place workers on furlough. But many have sacked workers in response to expected lower demand.
In another grim month for the services sector, firms reported that total new work and export orders continued to fall. Some said their sales operations were constrained by staff being furloughed.
UK services firms worried about future
Duncan Brock, group director at Cips, the Chartered Institute of Procurement & Supply, said “May’s survey data painted a deeply concerning picture of a lockdown slowdown across the service sector.”
“Any hoped-for bounceback in business output never really got going in May following the previous month’s awful results.”
Brock said there was “a modicum of recovery” in some areas, however. There were some reports that the gradual reopening of the UK economy had a positive impact on client demand.
Moore said companies remained concerned that the virus, social distancing and safety measures would impact business.
He said: “Customer-facing businesses continue to report extreme levels of concern about their near-term prospects,with efforts to adapt to social distancing measures set to hold back capacity and generate a sharp increase in costs.”