HomeUK Services Sector Recovery Continues

UK Services Sector Recovery Continues

6 October 2020 By Mircea Vasiu

British PMI Services data showed continued expansion from the most important economic sector in the kingdom. For the third consecutive month, the services sector rose on the back of new work due to improving market conditions. 

The expectations were for a 55.1 print, and the actual of 56.1 was a positive surprise for GBP traders and UK economists that track the progress made by the economy. However, besides the PMI showing growth above the 50 level, some signs of weakness remain, enough to cast a shadow of doubt on the future economic progress.

Details of September UK PMI Services Data

IHS Markit calculates three PMIs in the United Kingdom – services, manufacturing, and construction. Out of the three, the services release matters the most because the British economy is a service-based one. Therefore, details about the performance in the sector, how each sub-component evolves from month to month, are often more important than the information provided by the other PMIs.

As this is a survey, the best way to form an idea about how the sector performs is to have a look at what the respondents in the survey had to say. For instance, one company in the arts, entertainment and recreation sub-sector sees a bleak outlook for the next couple of years. The explanation comes from the fact that Hollywood has cut content for the rest of the year and pushed it to 2021 and even beyond. As such, growth is unlikely. Moreover, health orders restrict the audience, which further impacts this particular area of the services sector.

On the other hand, one company on the agricultural, forestry, fishing, and hunting niche responded that business was pretty solid over the summer. Moreover, the perspectives are looking good, even though there is some growing concern regarding the future level of the activity and how the pandemic evolves.

The two examples show how the pandemic affects an economic sector, with some niches faring better than others. What we see in the U.K. is a good example of how the COVID-19 is affecting all developed economies.

The biggest issue with the September PMI Services in the United Kingdom comes from the employment component. It shows a decline in the number of workers employed in the sector, albeit at a slower rate.

For the sector, or any economic sector, to show a positive monthly print, the employment should rise, or at least remain constant from one period to another. Until that is the case, the services sector in the UK still has a long way to full recovery.

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