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Financial News: UK Service Sector Growth At 9-Month High

UK Service Sector Growth At 9-Month High

08/05/2019 - 08:19:00 (RTTNews)

(RTTNews) - The UK service sector growth strengthened to a nine-month high in July, driven by a renewed increase in new work, survey data from IHS Markit showed Monday.

The IHS Markit/Chartered Institute of Procurement & Supply services Purchasing Managers' Index rose to 51.4 in July from 50.2 in June. The reading was forecast to rise marginally to 50.5.

The sector expanded for the fourth straight month with the latest growth fastest in nine months. Nonetheless, the pace of growth remained subdued.

The survey revealed a solid rebound in new work with the pace of growth strongest since September 2018 as the weaker currency helped to improve foreign demand.

New orders from abroad increased the most since June 2018, while domestic political uncertainty held back decision-making among clients.

At the same time, the rate of job creation eased from the previous month, largely due to a lack of pressure on business capacity. Also, some service providers noted that rising payroll costs resulted in more cautious hiring strategies.

Average cost burdens increased with the rate of input price inflation unchanged since June. Companies reported an increase in their business expenses citing the weak pound, higher staff wages and greater fuel prices.

Meanwhile, prices charged by service sector firms increased at only a moderate pace reflecting stiff competition.

Business optimism towards the year-ahead outlook weakened for the second month running and reached its lowest level since March.

Data showed that the all sector output index picked up to 50.3 in July from 49.2 in June, signaling a fractional expansion of private sector business activity.

Stronger growth of service sector activity was offset by the steepest fall in manufacturing production for seven years and reduction in construction output.

The overall picture is one of an economy that is only just managing to skirt recession, with July's performance among the worst since the height of the global financial crisis in 2009, Chris Williamson, chief business economist at IHS Markit, said.

The latest PMI numbers are indicative of the economy stagnating at the start of the third quarter after indicating a 0.1 percent decline in the second quarter, Williamson added.

Abstracting from the Brexit-related volatility in quarterly growth, the stabilization in the three PMI surveys in July suggests the slowdown in the underlying growth rate of the economy in the first half of the year might be starting to reverse, Andrew Wishart, an economist at Capital Economics, said.

The Bank of England last week said GDP is expected to have been flat in the second quarter and lowered the growth projection for this year to 1.3 percent from 1.5 percent.

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