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7/6/2015 9:00:00 AM

Services sector slows: PMI Services Sector Report summary

There has been concern from UK analysts following reports of weakening performance in the services sector. The sector, a key economic driver, showed a marked slowdown, denting hopes of post-election pick-up. May 2015 saw the biggest slowdown in the services sector in nearly four years. 

The services sector includes hotels, restaurants, financial companies and creative agencies and has been the main driver behind the UK’s economic recovery in recent years.

Services make up nearly 70 percent of our economic output and Chris Williamson (chief economist at data provider Markit) warns that the results suggest Britain will continue to experience problems.

He said: “Recent weakness in manufacturing and construction has spread to services. The surveys point to GDP growing at a quarterly rate of just 0.4 percent in May, raising doubts about the ability of the economy to rebound convincingly from the weakness seen at the start of the year.”
 

OECD downgrade forecast

In another blow to the UK economy the Organisation for Economic Co-operation and Development (OECD) also officially reduced its forecast for growth in the UK to 2.4 percent. This figure is down from the March forecast of 2.6 percent.

Moreover, it also cut its 2015 forecast for global growth by 0.6 percent to 3.1 percent. The OECD has suggested that the global economy is 'muddling through' with a ‘B-minus grade’.
 

Services growth continues to slow

According to the latest Markit Purchasing Manager’s Index (PMI) Report on Services for May growth in Britain’s key service sectors has slowed. This is causing doubts as to whether the economy can recover from a weak start to the year.

In April, the PMI stood at 59.5 but fell in May to 56.5. Whilst the figure is much higher than the benchmark 50 (indicating economic growth) May’s result is the weakest in four months.

Chief Executive of the Chartered Institute of Procurement and Supply, David Noble, said: “Momentum in the sector stalled in May, with the drop in the headline index the biggest fall for almost four years and likely to cause concern as services remains the UK’s largest driver of economic growth.”

Growth in the UK economy slowed to just 0.3 percent in Q1 2015 with analysts blaming factors, including ‘pre-election jitters’, for the slow growth. However, analysts also predicted an improvement for Q2 which hasn’t materialised.
 

Industry respose

Chief economist at World First, Jeremy Cook is particularly concerned about the slowdown. He said: “The service sector is still expanding at a decent clip but has come down from the elevated levels seen so far this year. This is a little bit concerning given the movements that we have seen in real wages in the past few months. The services sector is where additional disposable income should be being spent”.

The European Central Bank will also be disappointed by the deceleration in growth. This is mainly due to the fact that it left monetary policy unchanged just a few months after it embarked on a trillion-euro quantitative easing programme to try to drive growth and fuel inflation.

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