UK service sector boosted by export sales and new business growth

Prices charged by service sector firms rose at a record pace during the period thanks to soaring inflation, higher fuel prices and wage increases. Photo: Stu Forster/Getty

The UK saw a strong recovery in service sector activity in November, boosted by a steep rise in exports and new business growth.

New business intake accelerated for the second month running last month, and was the strongest since June.

Export sales were a key factor supporting growth across the service economy last month, with looser travel restrictions contributing to the sharpest upturn in new business from abroad since March 2017.

Twice as many survey respondents (32%) signalled a rise in new orders compared to those that reported a decline (16%). Service providers pointed to strong business and consumer spending, reflecting improving economic conditions and a sustained boost from reopening.

The latest survey data from IHS Markit, showed that its UK services PMI Business Activity Index registered 58.5 in November, little changed from the earlier flash reading of 58.6, and down only slightly from October’s three month high of 59.1. Any reading above 50 indicates growth.

Chart: IHS Markit, CIPSChart: IHS Markit, CIPS

Chart: IHS Markit, CIPS

As a result, output growth in the final quarter of 2021 remains well on track to exceed that seen in the third quarter, it said.

IHS added that export sales gained momentum in November, with the rate of growth the steepest for more than four-and-a-half years.

However, prices charged by service sector firms also rose at a record pace during the period thanks to soaring inflation, higher fuel prices and wage increases.

Prices charged by service providers also increased at the fastest rate since the survey began in July 1996.

Higher output charges mostly reflected increased operating expenses, the report said, although some firms said that constrained supply and clients’ focus on delivery schedules had helped to boost pricing power.

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Staff shortages and supply chain constraints also held back business expectations in the service sector. The degree of optimism about business activity growth was the lowest for 12 months.

“The overall speed of recovery looks to have accelerated in comparison to the third quarter of 2021, with output growth mostly driven by services as manufacturers struggle with severe shortages of raw materials and critical components,” Tim Moore, economics director at IHS Markit, said.

“The vast majority of survey responses in November were received prior to the news of the Omicron variant, however, which has the potential to derail near-term growth prospects and add to international supply chain disruption.”

It came as eurozone growth accelerated for the first time in four months in November, as the PMI rose to 55.4, from 54.2 in October.

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Readings for the eurozone as a whole showed that economic growth in the private sector climbed last month mainly thanks to resilience in the service sector, while manufacturers were held back by ongoing supply chain shortages.

Germany, Europe’s biggest economy, continued to lag compared to the rest of the continent, however.

Growth in Spain’s service sector hit a three-month high in November, services activity accelerated to a five-month high in France, and Ireland saw the strongest growth despite slipping to a seven-month low.

But near-term prospects dimmed, as a fourth wave of COVID infections saw inflows of new business fall whilst also dampening business confidence.

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