UK services sector signals turnaround as slump in activity slows sharply in June

The UK services sector signalled it made progress in June as declining activity significantly slowed down due to the easing of lockdown measures, according to new data.

The closely watched IHS Markit/CIPS Services purchasing managers’ index (PMI) rose to a reading of 47.1 last month from 29 in May, which had followed an all-time low of 13.4 in April.

A reading of 47 had been expected by most economists.

A score above 50 means the sector is growing but anything below 50 means it is shrinking.

Firms said they still saw “highly subdued demand and disruptions” related to the pandemic weigh on trading, but also suggested that measures to restart some parts of the economy “had a favourable impact on business activity”.

The survey data signalled the slowest fall in new work since the downturn began in March, it said.

Tim Moore, economics director at IHS Markit, said: “June data highlights that the worst phase of the service sector downturn has passed as more businesses start to reopen and adapt their operations to meet social distancing requirements.

“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.

“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.”

Businesses also reported “reduced intakes of new work from overseas clients” as travel restrictions continued to weigh on exports.

Staff cuts also continued in June, although respondents reported an easing in the rate of jobs losses.

Duncan Brock, group director at the Chartered Institute of Procurement & Supply (CIPS), said: “As the sector regains some momentum, employment levels amongst services personnel remain deeply concerning.

“Businesses securing their premises to ensure Covid safety for staff and customers means operating costs are rising.”

However, Samuel Tombs, chief UK economist at Pantheon Macroeconomics, described the figures as a “pretty meaningless indicator right now”.