UK Services Sector Logs Steep Contraction In May

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The UK service providers reported a steep reduction in business activity in May due to a fall in business and consumer spending amid the coronavirus, or Covid-19, pandemic, data from IHS Markit showed on Wednesday.

The final IHS Markit/Chartered Institute of Procurement & Supply services Purchasing Managers’ Index advanced to 29.0 in May from 13.4 in the previous month. This was above the flash estimate of 27.8.

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

There was another sharp fall in total new work received by service providers in May, although the pace of decline eased from April’s survey record. New export work also decreased sharply in May.

Employment fell at the second fastest pace since the survey began in mid-1996. Employees had been placed on furlough, while some reported redundancies amid an expected slump in customer demand over the long term.

At the same time, the index measuring business expectations for the year ahead remained at a very subdued level in May, despite rising to a three-month high.

On the price front, the survey showed that input prices decreased moderately in May. At the same time, service providers reported another marked fall in average prices charged in May.

As manufacturing output and service sector activity both remained on a downward trajectory, the final composite output index came in at 30.0 in May, but up from a record low 13.8 in April. The flash score was 28.9.

“As restrictions are eased, there is still extreme uncertainty about how the pandemic will pan out,” Duncan Brock, Group Director at the CIPS, said. “Continued anxiety about the coronavirus means consumer spending may not be the wind beneath the sails of any immediate return to pre-virus economic activity.”

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