Wednesday 22 November 2017

Service sector growth fell in June but exports surged ahead thanks to new business in UK

Philip O’Sullivan of Investec
Philip O’Sullivan of Investec
Ellie Donnelly

Ellie Donnelly

Growth in the service sector fell month on month in June, following a 10-month high in April, as new domestic business orders expanded at a slower pace.

However, the news was more encouraging for new export business, where the rate of growth has quickened to a three-month high, according to the latest data from the Investec Services PMI report.

Surprisingly, given the volatility of sterling, a number of panellists cited the UK as a particular source of new business wins, defying the effects of a weaker pound.

The news goes against the trend in the UK, where the dominant services sector expanded the least in four months in June, adding to evidence that the economy is weakening as Brexit negotiations start in earnest.

"The ratio of those expecting growth (in Ireland) to those anticipating a decline is standing at more than 8:1. Given the generally improving international backdrop, we think that this optimism is warranted," Philip O'Sullivan, economist with specialist bank Investec, said.

The growth in new orders has led to a continued increase in both business outstanding and employment, with nearly six times as many respondents reporting increases in headcounts, as opposed to those who have reduced theirs.

On the margin side, average input prices once again rose at a sharp pace in June, with panellists blaming higher staff costs.

As has been the case for 39 months now, firms were able to pass some of the cost on to consumers by hiking prices

In the UK, businesses are now calling on prime minister Theresa May to prioritise the economy in talks to leave the EU after she lost her parliamentary majority in June.

IHS Markit economist Chris Williamson said while the three surveys point to economic growth of 0.4pc in the second quarter - double that of the previous three months - momentum in the UK was ebbing. (Additional reporting from Bloomberg).

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