Uk Services Sector Set To Improve In 2021
With the brutal combination of Brexit and the COVID-19 pandemic, 2020 was a difficult year for the UK services sector, with periods of both uncertainty and optimism. However, with the gradual introduction of coronavirus vaccines, it’s thought that 2021 could be a much more prosperous year for the UK services sector.
Wavering PMI for UK services sector during 2020
UK services Purchase Managers Index (PMI) for 2020 was largely influenced by coronavirus lockdown restrictions, with figures significantly dropping during these periods. April 2020, for example, saw UK services PMI drop to a record low of 13.40, down from 35.7 the previous month. As COVID-19 restrictions began to ease, we saw figures slowly grow from strength to strength until November 2020 when the UK’s second national lockdown was introduced. With figures reaching as high as 56.6 in July, November figures soon dropped down to 47.6 as coronavirus sought to ravage the UK economy once again.
However, December saw a mild improvement in services PMI figures, reaching 50.4. IHS Markit economics director, Tim Moore, stated; “December data confirms that the UK service sector has swung back into decline after the partial rebound seen during the third quarter of 2020, largely reflecting tighter restrictions on consumer services amid the worsening trajectory of the pandemic”
However, with the introduction of coronavirus vaccine programmes, including Pfizer, Oxford-AstraZeneca and Moderna to be rolled out shortly, it’s predicted that the UK services sector will see a significant improvement in 2021. The Bank of England (BoE) has forecast that business sales will only be 2% below pre-pandemic levels, having previously forecast an 8% decline the previous month. The BoE’s change in forecast is reflective of the overall more optimistic outlook for the state of the UK economy going forward.
Despite the positive outlook, it’s thought that the beginning of 2021 will remain a struggle, particularly with uncertainty amongst businesses regarding post-Brexit trade rules and large portions of the UK population still unvaccinated.
Post-Brexit uncertainty places pressure on financial services
Financial services is just one of the industries within the service sector to experience a shaky start to 2021, largely down to post-Brexit woes. The Brexit trade deal remained unclear regarding how financial services would operate between the UK and the EU. The financial services market is worth an estimated £100 billion to UK firms, with the House of Commons library claiming the industry contributed £132 billion to the UK economy in 2018, with around half of that coming from London.
Chief Executive, London Chamber of Commerce and Industry, Richard Burge, stated that the difficult start of the year for financial services was expected and must be addressed immediately to prevent any long-term disruptions.
Many service sector firms say that Brexit-related uncertainty is the most pressing factor they are facing in 2021, acting as a brake on business activity growth. Political uncertainty had resulted in delays to corporate spending decisions as well as a general rise in risk aversion among clients.
Burge highlighted that the UK government must persuade the EU to grant equivalence between UK and EU financial services, by which they must evidence that the UK’s regulatory system in the sector is compliant with EU regulations.
Top performing sector
As per usual, the best-performing broad category of activity in 2020 was Computing and IT businesses, most notably ‘Big Tech’, which comprises Amazon, Apple, Google and Facebook. The robust and accelerated upturn in business activity was mostly supported by the sharpest rise in remote working as a result of the coronavirus pandemic. Computing and IT service providers are much more upbeat about the year-ahead business outlook than the rest of the services sector.
If you’re concerned about the future of the services sector post-Brexit, please do not hesitate to talk to us to see how we can help.