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UK Service Sector Expands Most In 3 Months

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The UK service sector growth improved more-than-expected to a three-month high in May, but overall private sector activity weakened due to the contractions in manufacturing and construction, survey data from IHS Markit showed Wednesday.

The Chartered Institute of Procurement & Supply Purchasing Managers' Index for services rose to 51.0 in May from 50.4 in April. The reading was also above the forecast of 50.6.

At 50.7 in May, the all sector output index dropped from 50.9 in April. Nonetheless, a score above 50 indicates expansion in the private sector.

A sharp slowdown in manufacturing production growth and lower construction output more than offset an improvement in service sector, the survey revealed.

"The PMI surveys collectively indicated that the UK economy remained close to stagnation midway through the second quarter as a result, registering one of the weakest performances since 2012," Chris Williamson, chief business economist at IHS Markit, said.

The survey showed that the recovery in services output was supported by a moderate rebound in new business. Nonetheless, there were widespread reports that Brexit uncertainty held back client demand.

For the first time in five months, new work received by service providers increased in May. That said, the rate of new business expansion was only marginal.

Staffing levels rebounded in May, with the rate of job creation hitting the strongest in six months.

Higher staff wages and rising transport costs contributed to another strong rise in input prices. Moreover, the weak sterling exchange rate also pushed up input costs.

At the same time, stronger demand and efforts to protect margins led to the sharpest rise in prices charged by service providers so far in 2019.

Finally, business optimism improved in May to the highest level in eight months. However, respondents underscored that domestic political uncertainty remained a key factor holding back their growth expectations for the year ahead.

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