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Financial News: UK Services Sector Expands In April Despite Subdued

UK Services Sector Expands In April Despite Subdued Demand

05/03/2019 - 06:35:00 (RTTNews)

(RTTNews) - UK services sector expanded in April, after contracting in the previous month, even as demand remained subdued, survey data from IHS Markit showed on Friday.

The IHS Markit/CIPS UK Services Purchasing Managers' Index, or PMI, climbed to 50.4 from March's 32-month low of 48.9. Economists had forecast a score of 50.4.

A PMI score above 50 suggests growth in the sector.

Survey respondents continued to report that Brexit uncertainty and concerns about the UK economic outlook had encouraged clients to postpone spending decisions, IHS Markit said.

New business decreased for the fourth consecutive month in April, making the current period of decline the longest since 2009. Firms attributed the latest fall in demand to subdued domestic consumer and business spending.

Exports continued its downward trend recorded since September 2018. Several firms reported that Brexit uncertainty had a negative influence on demand from European clients, while any rise in new work was mainly due to sales to US markets.

Backlogs shrunk for the seventh straight month and job creation was held back due to efforts to align capacity with softer demand conditions.

Employment was broadly unchanged since March, and the recent phase of staff hiring has been the weakest since the end of 2012, the survey said.

Despite the weaker demand for staff and lower volumes of new work, business optimism about the year ahead outlook for business activity rebounded to the highest level since September 2018.

The improvement was attributed mainly to more favorable projections for their sales and marketing initiatives, linked to product launches and the recent progress of new business opportunities.

Margins were likely under pressure as the rate of input price inflation accelerated to a three-month high, led by fuel costs and a rise in the National Living Wage. Charge inflation remained close to March's 21-month low.

The composite PMI rose to 50.9 in April from 50 in March. Economists had forecast a score of 50.6.

Manufacturing was the top performer in April, while services and construction loggeed only marginal rates of expansion.

"Although business grew more optimistic about the outlook, linked in part to more favorable prospects amid the reduced threat of an imminent 'no deal' Brexit, forward-looking indicators such as order books and backlogs of work hint at a near-term sustained weakness of demand, which has already filtered through to a reduction of employment," Chris Williamson, Chief Business Economist at IHS Markit said.

"Both GDP and labor market numbers could therefore disappoint in coming months, as the weakness of the survey data feeds through to official data."

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