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Services sector remains in decline but improves from January lows

The IHS Markit / CIPS Purchasing Managers Index (PMI) came in at 49.5 in February, up from 39.5 in January. Anything below 50 is a sector in decline.

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The services sector is still in decline as the lockdown continues to impact pubs, bars and restaurants. (Dominic Lipinski / PA)

The services sector is still in decline as the lockdown continues to impact pubs, bars and restaurants. (Dominic Lipinski / PA)

The services sector is still in decline as the lockdown continues to impact pubs, bars and restaurants. (Dominic Lipinski / PA)

Restrictions on travel, leisure and hospitality due to the ongoing lockdown restrictions saw the UK’s all-important services sector continue to shrink in February, according to new data.

The closely followed IHS Markit / CIPS Purchasing Managers Index (PMI) came in at 49.5 in February – anything below 50 is seen as a sector in decline – although it was a vast improvement on the eight-month low of 39.5 recorded in January.

The PMI for services has now come below 50 for four consecutive months, although a score of 49.5 was the highest score during those months, suggesting the sector stabilised as the lockdowns progressed.

The rain on this parade comes in the form of the highest rise in input costs since February 2020 which is being passed on to consumers at a faster rate, as shipping, fuel and fresh food deliveries went up in price.Duncan Brock, CIPS

There were some pockets of growth in technology and business services, the survey found, and staffing levels decreased at the slowest pace since the coronavirus pandemic first hit employment numbers last March.

The continued furlough scheme, which has now been extended until September, softened the degree of job losses among consumer service providers and some businesses reported optimism as the vaccine rollout maintains a strong pace.

New business volumes fell only slightly during February, with the rate of contraction easing considerably from that seen at the start of the third national lockdown in January.

Low demand was mainly due to a lack of sales opportunities and clients holding back to see how the pandemic played out, the survey found.

It added that difficulties continued to persist with the new trading arrangements with the EU continuing to have an impact on firms.

New work from abroad fell sharply with travel restrictions and additional paperwork also affecting exports, companies said.

There were also signs of inflation, with a sharp and accelerated increase in average cost burdens at service sector companies, primarily due to higher fuel bills and shipping costs.

Tim Moore, economics director at IHS Markit, which compiles the survey, said: “It appears that the third national lockdown has seen limited spillovers to parts of the economy beyond the scope of Government-mandated closures.

“While customer-facing businesses continued to report severe constraints on activity due to the pandemic, there were signs of growth in technology and some business services after a disappointing start to 2021.”

Duncan Brock, group director at the CIPS, added: “The rain on this parade comes in the form of the highest rise in input costs since February 2020 which is being passed on to consumers at a faster rate, as shipping, fuel and fresh food deliveries went up in price.

“Added to this, the true employment picture is still hidden by extended furlough schemes making any surge in UK consumer spending limited if job insecurity ramps up and inflation rears its ugly head.”

PA


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