2020.07.0311:00:00UTC+00UK Service Sector Contraction Sharply Slows In June

The pace of deterioration in the UK service sector slowed sharply in June, as more businesses reopened and started operating after meeting the social distancing requirements meant to fight the coronavirus, or Covid-19, pandemic.

The final CIPS UK services Purchasing Managers' Index, or PMI, climbed to 47.1 from 29 in May, survey data from IHS Markit showed on Friday. The flash for June was 47.

The latest reading was the highest in four months and well above April's record low of 13.4.

However, a score below 50 suggests contraction in the sector.

"Encouragingly, more than one-in-four service providers reported an expansion of new business during June, which was commonly attributed to pent up demand and the phased restart of the UK economy," Tim Moore, economics director at IHS Markit, said.

"However, lockdown measures continued to hold back travel and leisure, while companies across all main categories of service activity commented on subdued underlying business and consumer spending in the wake of the COVID-19 pandemic."

New work fell at the slowest pace since the downturn began in March, as businesses and consumers remained cautious. Export demand continued to fall at a steeper rate than domestic orders, largely due to international travel restrictions.

Backlogs continued to be depleted at a steep rate signaling excess capacity. The pace of job shedding was the slowest since the downturn started in March.

More than half of the survey panel, 53 percent, anticipate a rise in business activity during the year ahead, compared to 21 percent that foresee a decline, the survey showed. The business expectations index hit a four-month high in June.

For a fourth straight month, price discounting was reported across the service sector, but cost burdens were broadly unchanged. Higher average costs due to spending on PPE and reduced operating capacity, lower fuel bills and reduced payroll costs were among the factor influencing pricing in June.

The final composite PMI, which combines manufacturing and services, rose to 47.7 in June from 30.0 in May. This was the highest reading for four months, yet below the neutral 50.0 mark. The flash reading for June was 47.6.

Earlier, survey data had shown that the manufacturing PMI rose to 50.7 in June, thus signaling modest growth in the sector.