UK services PMI rises but activity remains in contractionOn July 3, 2020 by Thomas Belayneh
Figures released this morning from IHS Markit’s UK Services PMI showed that whilst this month’s report posted a significantly higher reading than May’s report of 29, it remained below the no-change in activity threshold of 50. This latest release is the highest that the UK Services PMI has been in four months at 47.1, although it is disappointingly only marginally ahead of expectations for 47.
Following April’s record low of 13.4, today’s news confirms and continues the trend of improving activity levels as the UK government embarks on its phased reopening of the economy. Bars, restaurants and hairdressers are all due to reopen from 4th July, which should provide further impetus to July’s Services PMI reading.
Encouragingly, the proportion of services businesses that reported activity contraction continued to decline from its 79% peak in April to a three-month low of 33% in June, whilst a quarter reported increased activity on the prior month.
New order volumes, however, continued to decline this month albeit at its slowest pace since March. Of the survey respondents reporting falling new order volumes, they cited cautious businesses and consumers spending as the primary driver of such falls. Growth in activity from depressed levels was mainly attributable to reopening and pent-up demand in these situations.
In a more precarious position than new order volumes was export sales, which continued to fall at a relatively faster pace with survey respondents citing travel restrictions, logistical difficulties and elevated economic uncertainty as key reasons for being unable to solicit new business.
Headcount continued to decrease in June although at its slowest rate since March. Businesses cited combating the slump in demand by reducing costs being the key reason for doing so, despite 53% reporting an expectation of a rise in activity over the next twelve months. The corresponding business expectations index reached a four-month high as a result.
Finally, as average costs remained roughly unchanged, respondents reported price discounting for the fourth month in a bid to increase new demand and maintain existing demand, squeezing profit margins and potentially foreshadowing further job cuts at relatively higher cost peers.
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