UK service sector activity slows more than expected in May

Activity in the UK services sector slowed more than expected in May, according to the latest survey from IHS Markit and CIPS.

The Markit/CIPS services purchasing managers' business activity index fell to 53.8 from the four-month peak of 55.8 in April, missing expectations for a reading of 55.0. Although the index was above the 50.0 mark that separates contraction from expansion, it signalled the slowest expansion of service sector output since February, mainly due to weaker new business growth.

Markit said the slowdown in new order growth was linked to squeezed household budgets and, in some cases, delayed decision-making among clients ahead of the general election.

Chris Williamson, chief business economist at IHS Markit, said: “Despite slower growth in May, the surveys indicate that the economy has regained some momentum in the second quarter. The three PMI surveys are running at levels that are historically consistent with GDP growing at a robust 0.5% rate, albeit with the slowing in May posing some downside risks to the near-term outlook.

“Optimism about the year ahead is running below the long-run average, weighed down principally by concerns over Brexit, political uncertainty and weaker spending by households. However, at the moment firms generally remain upbeat and very much in expansion mode: the employment indicators from the three PMI surveys are consistent with around 30,000 private sector jobs being added each month."

Pantheon Macroeconomics said: "The pullback in the services PMI in May from April’s four-month high is a setback to widespread hopes that the economy’s slowdown in the first quarter will be fleeting. Both business activity and orders increased at their weakest rates since February. Some respondents reported that clients were delaying decisions until after the general election, but we see no past evidence that the PMI or GDP growth has been adversely affected by elections."