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December 2017

UK service sector hit by triple challenge

Published: Wednesday 06 December 2017

By Adrian Bishop

The UK service sector has been hit by three major challenges, with business growth easing, prices charged rising at a nine-year high and recruitment issues.
Firms say they need to pass higher costs on to customers because of the weak Pound having driven up import prices.

The IHS Markit/CIPS UK Services PMI Business Activity Index was at 53.8 in November, down 1.8 points from October and lower than the forecast of 55.0, but above the 50.0 no-change value for the 16th consecutive month.

Volumes of new work increased more slowly in the sector and the rate of staff hiring was the joint-slowest since March.

Optimism over the outlook for business activity in the year ahead picked up slightly in November, but remained weaker than the first half of 2017 and the long-term average. The subdued confidence was linked to Brexit uncertainty, heightened economic uncertainty and ongoing pressure on margins from sharply rising input costs.

The news came on top of a difficult day for Sterling, which initially fell against major currencies following the announcement that Brexit talks floundered after disagreements over Irish border proposals, but picked up later in the day on hopes that there would be a breakthrough.

David Johnson, Halo Financial’s Founding Director, says, “Given the massive uncertainty that the Brexit talks have gone through, it is no wonder that the service industry is showing a wobble in confidence compared with earlier in the year. However, in spite of a number of negative reports, Sterling is holding up pretty well, so this is a sign that there is still some confidence underpinning UK businesses.

“In addition, negotiations with the EU are continuing. The UK government has told MPs that it is close to concluding the first phase and there are hopes that a deal can be reached, so with EU reports trickling through saying that a deal is around 85% complete, there may be light at the end of the tunnel.”

The Business Activity Index reports that input price inflation is at the strongest since the first half of 2011, with survey respondents linking higher operating expenses to increased costs for energy, food, fuel, imported items and staff salaries.

There was only a moderate rise in employment numbers, with the rate of job creation unchanged from October’s seven-month low.

There were signs of pressure on operating capacity, highlighted by a rise in backlogs of work for the third time in the past four months.

Some survey respondents linked rising volumes of unfinished work to recruitment difficulties and a lack of suitably skilled staff.

Chris Williamson, Chief Business Economist at IHS Markit, which compiles the survey, says,
“Slower service sector growth comes as a disappointment after the improved performances of both manufacturing and construction in November. However, despite the weaker service sector expansion, the latest survey data indicate that the economy is on course to enjoy robust growth in the fourth quarter. The survey data are so far consistent with the economy growing at a quarterly rate of 0.45% in the closing months of 2017.

“Future expectations ticked higher but nevertheless remain very low by historical standards, underscoring the potential for risk aversion to intensify and subdue growth if the news flow relating to Brexit deteriorates.”

The big news is in relation to prices, with the PMI surveys pointing to the largest monthly increase in average prices charged for goods and services since August 2008; when oil prices soared just before the global financial crisis, he explains. Rising oil prices were again to blame in November.
 

About Halo Financial

 

Halo Financial is a leading UK foreign exchange brokerage, offering a comprehensive range of services to individuals and businesses since its inception in 2005. The business prides itself on offering a flexible and personalised approach for each of its clients, simplifying the seemingly complex foreign exchange market to maximise savings in currency transactions, protect against currency risk and make money go further.

Staffed by qualified technical analysts, the company is authorised by the Financial Conduct Authority and HM Revenue and Customs.

“Excellent”, “Reliable”, “Professional”, “Knowledgeable”, and “Helpful”– just some of the great feedback received as a Gold Trusted Service Provider for Feefo.com. The team at Halo are proud that customers rate their services so highly and are happy to recommend to others. The company is always striving to provide the best possible service and to innovate services and products in line with customers’ ever-evolving needs.

Halo Financial won Best Customer Focus category in the 2016 Best Business Awards; received OPP Gold for Best Supporting Service; the Gold Award for Financial Support and Innovation from Relocate Magazine, Commendations in the 2016 and 2017 Moneyfacts Awards and has 5 out 5 Star Customer Gold Merchant Status via independent review website, Feefo.com, winning their Gold Trusted Service award.

 
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