Date: Friday 03 Aug 2012
-All sector PMI at 39 month low
-Temporary factors and tough economic climate weigh on activity
-Employment up for eighth month in a row
-Margins under pressure
-Markit and Barclays differ
The Markit July service sector purchasing managers index fell to 51 points, from 51.3 in June.
That versus a consensus estimate for a rise to 51.5
The above as temporary factors – poor weather in the first half of July and, in some instances, disruption in the lead up to the Olympics – combined with a tough economic climate depressed growth.
Nevertheless, margins remained under pressure as strong market competition led to discounting of charges, while input prices continued to rise – in spite of evidence of falling fuel costs.
As well, where a rise in activity was recorded, this was in part linked to a natural increase following the additional bank holidays in June and also to gains in new business.
Despite new work (moves up to 52.3 from 51.3) rising at a faster rate than activity, UK service providers were again able to make inroads into levels of work outstanding. July marked the third successive month that backlogs have fallen, with the latest reduction the sharpest since November 2011.
An increase in employment (steady at 51.7) was recorded in the latest survey period, extending the current run of growth to eight months.
Average input prices (fell to 54.4 from 54.8) continued to rise during July amid some reports that suppliers were passing on their own higher costs.
Finally, business sentiment (rose to 65.6 from 64.3) remained in positive territory in the latest survey period. However, the degree of confidence remained well below the long-run survey average reflecting concerns over the UK macro-economic climate.
Markit was of the following opinion:
“(…) Combining the latest services data with figures from the sister construction and manufacturing surveys, the All-Sector PMI dropped below 50.0 for the first time in 39 months in July. Not withstanding aforementioned temporary factors, the latest data further highlight the loss of momentum in the UK economy following the relatively bright start to the year.”
Economists at Barclays on the other hand took a more constructive view:
“Taking the three sectoral PMIs together, they suggest the economy posted a small contraction in July, driven by the manufacturing sector but with the other sectors providing little support. Even so, to the extent that the official data tend to show a larger disruption to activity from the extra bank holiday in Q2 than the PMI surveys, we would expect the relationship between the two series to be particularly poor when explaining the Q2 and Q3 growth dynamics.
“As a result, we would caution against over interpreting the PMI survey data for this period. We expect the economy to grow strongly in Q3 by 1.0% q/q as some of the Jubilee-related weakness in Q2 is unwound.”
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