UK Service Sector Growth Weakens Sharply In October

The UK service sector growth weakened sharply in October as tightening restrictions amid rising Covid-19 infections dampened activity in the hospitality, transport and leisure sectors, final survey data from IHS Markit showed Wednesday.

The services Purchasing Managers’ Index declined to 51.4 in October from 56.1 in the previous month. But the score was crucially above the 50.0 no-change mark but below the flash 52.3.

November’s lockdown in England and a worsening Covid-19 situation across the rest of Europe means that the UK economy seems on course for a double-dip recession this winter and a far more challenging path to recovery in 2021, Tim Moore, economics director at IHS Markit, said.

The moderate expansion in October was driven by a continued recovery in business operations after the national lockdown period during the second quarter of 2020 and the restart of work on delayed projects.

There was a drop in new orders for the first time since June. The overall figure masked a slump in demand for customer-facing service providers, especially those in the hotels, restaurants and catering category.

Reduced volumes of new business resulted in lower backlogs in October. Further, the survey showed another fall in employment reflecting redundancies in response to shrinking revenues during the pandemic.

Margins were under pressure from a solid increase in average cost burdens. At the same time, output prices dropped for the second month amid discounting to stimulate sales.

Although service providers were optimistic overall about their prospects for growth in the next 12 months, the degree of confidence slipped to its lowest since May.

The overall private sector continued to expand in October but at the slowest pace in four months. At 52.1, the composite output index dropped from 56.5 in September.

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