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UK service sector growth remains strong in November

By Michele Maatouk

Date: Friday 03 Dec 2021

UK service sector growth remains strong in November

(Sharecast News) - Growth in the UK services sector eased a touch in November but remained strong amid the fastest rise in new business intake in five months, according to a survey released on Friday.

The IHS Markit/CIPS services purchasing managers' index dipped to 58.5, little changed from the flash reading of 58.6 and down only a little from October's three-month high of 59.1.

A reading above 50 indicates growth, while a reading below signals contraction.

Strong output growth was attributed mostly to a swift recovery in client demand, although some firms said shortages of staff and supply chain issues had acted as a constraint on expansion.

Tim Moore, economics director at IHS Markit, said: "Surging price pressures have done little to dent business and consumer spending across the UK economy, according to the latest PMI data. New order growth hit a five-month high in November, job creation remained strong, and backlogs of work built up due to supply issues.

"The overall speed of recovery looks to have accelerated in comparison to the third quarter of 2021, with output growth mostly driven by services as manufacturers struggle with severe shortages of raw materials and critical components.

"The vast majority of survey responses in November were received prior to the news of the Omicron variant, however, which has the potential to derail near-term growth prospects and add to international supply chain disruption."

Looking ahead, Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, said the emergence of the Omicron variant looks set to weigh on consumer services expenditure at the end of Q4 and in Q1.

"Indeed, near-real-time indicators suggest that some consumers already have turned more cautious again. OpenTable data show that diner numbers in the five days to December 1 were only 5% above their level two years ago, compared to 17% above in the equivalent five days of the previous week. In addition, Google Trends data show that the number of people searching online for phrases including 'restaurant', 'pub' or 'gym' has fallen over the last week.

"Our forecasts for quarter-on-quarter growth in GDP to slow to 1.0% in Q4 and 0.8% in Q1, from 1.3% in Q3, already assumed that an element of consumer caution would return, so we have not revised them down yet. But the downside risks are building as a result of the new variant, and in a worst-case scenario in which current vaccines were far less effective and the UK returned to the type of lockdown seen at the start of this year, GDP plausibly would revert to being 7% below its January 2020 level, a 6% drop from September's level."

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