Service sector

UK service sector boosted by export sales and new business growth

Prices charged by companies in the service sector rose at a record pace during the period thanks to soaring inflation, rising fuel prices and rising wages. Photo: Stu Forster/Getty

The UK saw a strong pick-up in activity in the services sector in November, boosted by a sharp rise in exports and growth in new businesses.

The inflow of new business accelerated for the second consecutive month last month and was the strongest since June.

Export sales were a key factor in supporting growth across the services economy last month, with the easing of travel restrictions contributing to the biggest rise in new business from the abroad since March 2017.

Twice as many survey respondents (32%) reported an increase in new orders compared to those who reported a decrease (16%). Service providers pointed to strong business and consumer spending, reflecting improving economic conditions and a sustained reopening momentum.

The latest survey data from IHS Markit showed its UK services business activity PMI registered 58.5 in November, little change from the previous flash reading of 58.6, and down slightly from October’s three-month high of 59.1. Any reading above 50 indicates growth.

Chart: IHS Markit, CIPS

Chart: IHS Markit, CIPS

As a result, output growth in the last quarter of 2021 remains on track to exceed that seen in the third quarter, he said.

IHS added that export sales picked up momentum in November, with the highest growth rate in more than four and a half years.

However, prices charged by companies in the service sector also rose at a record pace during the period thanks to soaring inflation, rising fuel prices and rising wages.

Prices charged by service providers have also risen at the fastest rate since the survey began in July 1996.

The increase in production costs mainly reflects higher operating expenses, the report said, although some companies said limited supply and customer focus on delivery schedules helped bolster pricing power.

Watch: What is inflation and why is it important?

Staffing shortages and supply chain constraints have also dampened business expectations in the service sector. The level of optimism regarding the growth of business activity was the lowest in 12 months.

“The overall speed of the recovery appears to have accelerated compared to the third quarter of 2021, with production growth mainly driven by services as manufacturers grapple with severe shortages of raw materials and critical components.” , said Tim Moore, chief economics officer at IHS Markit. .

“The vast majority of responses to the November survey, however, were received before the announcement of the Omicron variant, which has the potential to derail near-term growth prospects and further disrupt the supply chain. international sourcing.

It came as euro zone growth accelerated for the first time in four months in November, as the PMI index rose to 55.4 from 54.2 in October.

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Readings for the euro zone as a whole showed that economic growth in the private sector rose last month mainly on the back of resilience in the service sector, while manufacturers were held back by continued supply chain shortages. supply.

Germany, Europe’s largest economy, however, continued to lag behind the rest of the continent.

Services sector growth in Spain hit a three-month high in November, services activity accelerated to a five-month high in France and Ireland saw the strongest growth despite a trough in seven months.

But the short-term outlook has darkened as a fourth wave of COVID infections has seen new business inflows plummet while undermining business confidence.

Watch: What we currently know about the omicron COVID-19 variant