2023.06.0513:12:00UTC+00UK Service Sector Maintains Strong Growth Momentum

The UK service sector continued to expand at a solid pace in May amid robust rises in output and new business despite mounting inflationary pressures fueled by higher wage costs, survey data from S&P Global revealed Monday.

The final Chartered Institute of Procurement & Supply services Purchasing Managers' Index dropped to 55.2 in May from 55.9 in April. A reading above 50 indicates expansion in the sector.

The growth of the service sector largely relied on higher consumer spending, particularly on leisure and tourism services.

Despite the continued economic uncertainty, strong sales pipelines and greater consumer willingness to spend boosted order volumes in May. The rate of growth in new business eased only marginally from April's 13-month high.

Export demand also showed a solid upturn on the back of increased international visitor numbers, alongside strengthening demand for business services among clients in the US and Europe.

British service firms lifted their workforce numbers in May with the combined effects of robust demand and improved candidate availability. Nonetheless, the rate of job creation eased since last month.

Firms reported that capacity pressures were partly alleviated by improving supplier lead times.

On the price front, input price inflation rose to a three-month high, driven by elevated wage pressures and on-going supplier price hikes, especially for food items. On a positive note, lower fuel bills helped to limit input cost inflation during May.

Output charges also continued to increase sharply, though the rate of inflation eased to its second-lowest since August 2021.

Service providers remain upbeat about output expectations over the next twelve months. This positive sentiment was mostly attributed to a robust sales pipeline and long-term business expansion plans.

The overall private sector expanded further at the start of the second quarter, as the composite index came in at 54.0 in May versus 54.9 in April. Rising services activity helped to offset a fall in manufacturing production.