Services sector eases but optimism hits fresh high on vaccine hopes - survey
By Abigail Townsend
Date: Thursday 03 Dec 2020
(Sharecast News) - The UK services sector eased in November, but optimism for the year ahead hit fresh highs as hopes grew that the Covid-19 pandemic would be soon brought under control, a closely-watched survey showed on Thursday.
The IHS Markit/CIPS UK Services PMI Business Activity Index for November eased to 47.6 from 51.4 in October, as lockdown measures were re-introduced across England. A reading below 50.0 indicates contraction, while a reading above shows growth.
It marks the end of a four-month period of recovery in the services sector. However, the decline was softer than the slump seen in the second quarter of 2020, and an improvement on the flash reading of 45.8. It also beat forecasts of 45.8.
There was a "modest" fall in new business volumes, reflecting temporary closures across hospitality, travel and leisure businesses. But looking ahead, the degree of confidence for the year ahead outlook was the highest since February, boosted by positive news on vaccines.
Around 60% of respondents are expecting a rise in business over the next 12 months, while 15% predicted a reduction.
Meanwhile, the IHS Markit Composite PMI for November, the weighted averages of comparable manufacturing and services PMI indices, was 49.0, down from October's 52.1 - the first time it has dipped below 50.0 since June.
It did, however, top both forecasts and the flash reading of 47.4.
Tim Moore, economics director at IHS Markit, said: "New lockdown measures and tighter pandemic restrictions unsurprisingly tipped UK private sector output back in decline during November.
"However, the collateral damage on areas outside the hospitality, leisure and travel has been far more modest than in the first lockdown period.
"Hopes that the pandemic will be brought under control from an effective vaccine resulted in a sharp improvement in business optimism. Across the UK private sector as a whole, confidence about the year ahead outlook reached its highest since March 2015."
However, Duncan Brock, group director at the Chartered Institute of Procurement and Supply, said: "Job shedding continued for the ninth month in a row and its ripple effect will have serious implications for an already struggling UK economy. The spectre of reduced consumer and client spending looms over the festive period, and Brexit disruption fears are thrown into the mix of challenges as everyone holds onto their cash."
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "We doubt that the drop in GDP in November was as modest as the composite PMI implies. Many businesses that were forced to close last month will have seen revenues drop to near-zero. The PMI, however, merely reflects whether firms' activity is rising or fall, not by how much.
"For now, we still look for around a month-to-month drop in GDP of about 5% in November, followed by an incomplete rebound of around 4% in December."
The service PMI is compiled in the second half of each month, with questionnaires sent to a panel of around 650 service sector components.
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