UK service sector 'skirting with recession' - PMI

The UK service sector had a lacklustre October, a closely-watched survey showed on Friday, as cost of living pressures continued to weigh on demand.

The latest S&P Global/CIPS UK Services PMI Business Activity Index came in at 49.5. That was up marginally on September’s 49.3, and ahead of both the flash reading and consensus of 49.2.

However, the print has now been below the key 50.0 level for three consecutive months. A reading above 50.0 suggests growth, while one below indicates contraction.

Respondents cited cost of living pressures, higher interest rates and weak consumer confidence for the lacklustre customer demand. Lower new orders and uncertainty about the business outlook mean companies also continued to cut jobs.

However, cost inflation eased to its lowest level for 32 months.

The composite PMI - the weighted average of comparable manufacturing and services indices - was 48.7 in October, up slightly from September’s eight-month-low of 48.5.

Tim Moore, economics director at S&P Global Market Intelligence, said: "A shallow downturn in the UK service sector activity persisted in October as businesses struggled to make headway.

"Forward-looking survey indicators suggested that service providers will continue to skirt with recession. The degree of optimism towards the business outlook was the lowest in 2023 so far, despite relief that interest hikes have taken a pause this autumn."

John Glen, chief economist at the Chartered Institute of Procurement and Supply, said: "Service providers were unable to shake off the malaise creeping over their sector and the UK economy as a whole, as companies and consumers alike remained concerned about the high costs of living and operating, and reduced their spending."

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "The composite PMI suggests the economy is flirting with a mild recession, but we continue to think that one will be narrowly avoided.

"Decreasing confidence about the outlook for demand prompted businesses in the services and manufacturing sectors to collectively reduce employment for a second consecutive month, albeit at a mild pace.

"Other surveys, however, paint a more resilient picture."

The survey was sent to a panel of around 650 service sector companies. The data were collected between 12 and 27 October.