Growth across the United Kingdom's vital services sector lost momentum last month, according to a key business survey, as softer consumer demand and pre-Budget uncertainty took their toll.
PMI Data Reveals Growth Slowdown
The latest S&P Global UK services Purchasing Managers' Index (PMI) registered a reading of 51.3 in November, a decline from October's 52.3. While any figure above the neutral 50.0 mark indicates expansion, the latest score signals a notable deceleration in the pace of growth. The result, however, was stronger than the 50.5 forecast by financial analysts.
Tim Moore, Economics Director at S&P Global Market Intelligence, interpreted the data. "November data revealed an abrupt end to the steady improvement in order books seen since the summer," he stated. He pointed to unfavourable demand conditions in both domestic and international markets, leading to a renewed slowdown in business activity growth that was "much softer than the post-pandemic trend."
Business Confidence and Investment Hit by Uncertainty
The survey highlighted that service sector firms faced significant headwinds due to subdued business and consumer confidence. A specific factor cited was the uncertainty in the run-up to the Chancellor's Autumn Budget last week, which prompted delays to investment decisions and encouraged more cautious spending.
The research also found a decline in new order books, attributed to a "lack of willingness" to commit to new projects. Furthermore, companies reported that reduced backlogs of work and rising employment costs led to another monthly fall in staff numbers, with the rate of job shedding being the sharpest recorded since February.
Inflationary Pressures Ease Sharply
In a significant development for the broader economy, the rate of price increases charged by service companies eased sharply in November. Firms moved to offset the easing demand by moderating their pricing, resulting in the slowest rate of inflation on prices charged since January 2021—a span of almost five years.
Matt Swannell, Chief Economic Adviser to the EY Item Club, noted that the survey was conducted before the Budget and that concerns over potential tax rises had weighed on sentiment. He suggested the combination of easing cost pressures and a deteriorating growth outlook is "paving the way for an interest rate cut before the Christmas break."
Swannell added that although the Bank of England's Monetary Policy Committee held rates steady in November, the decision was "finely balanced" and a majority of members anticipated having to reduce rates in the future.
