Service Sector Still Booming

Survey Shows Prospects For SMEs Good As Sector Marches Forward


Steven Beahan, Partner | +44 (0)114 294 7868

SMEs operating in the service sector have more reason for cheer as the latest data has shown continued healthy growth.

The Markit/Chartered Institute of Purchasing and Supply (CIPS) Purchasing Managers Index for May has indicated a reading of 58.6, only slightly down on April's 58.7 and well above the 50 mark that indicates no change.

As well as an increase in business activity, employment levels are continuing to rise swiftly, with the employment growth rate at its joint fastest in the past 17 years. Much of this will be in response to backlogs of work - up for the 14th successive month - as well as high levels of confidence in the future. This has helped generate widespread increases in pay rates as firms compete for skilled staff.

Commenting on the situation, group chief executive officer for the CIPS David Noble said: “Firms in the services sector are creating jobs at a level seen only once since 1997 and offering bigger salaries to boot; a sign of ever-increasing confidence in the sector, which is enabling firms to support expansion and take advantage of improved economic conditions."

The service PMI follows the publication earlier this week of the construction and manufacturing PMIs, which also indicated strong growth. Put together, these offer an upbeat picture of UK economic growth that suggest SMEs in all sectors have good reason for optimism.

Discussing the overall impact of these positive factors, chief economist at Markit Chris Williamson said the UK is enjoying "its best spell of growth since 2007". He said this means 0.8 per cent rate of economic growth seen in the first three months of the year is likely to be replicated in the second quarter.

This will be particularly significant as anything above 0.6 per cent would mean the size of the UK economy finally exceeding the peak it reached before the recession began in 2008.

The initial estimate for gross domestic product in the first quarter was unchanged at the second estimate, with the Office for National Statistics due to deliver a third and final estimate - based on more data than previously available - on June 27th.

Expert Opinion
It is very positive to see these figures emerge for the service sector, particularly as they have come just days after the Markit/CIPS statistics for manufacturing showed similar positivity.

"A specific aspect of interest is the growth being seen in employment, with figures suggesting the highest rate since 1997. This is a huge step forward for the sector and is a strong indication that businesses of all sizes are looking to take on more staff and develop their offerings.

"We would urge small businesses which are considering such steps to ensure they have the right support network in place to guide them through the potential growing pains which can emerge during such processes.

"Legal advice is particularly imperative to ensure that all employment and recruitment policies are robust and ensure staff understand positions and are motivated."
Steven Beahan, Partner