Press release

5 Oct 2020 London, GB

Purchasing managers report services activity eased back modestly in September – EY ITEM Club comments

The purchasing managers survey points to services activity coming modestly off its August 64-month high in September, with mixed performances across sectors, although it was still at a relatively elevated level.

Press contact

Annabel Banks

EY UK&I Media Relations Manager

A highly experienced communications professional with cross-sector experience in media relations having worked with global brands spanning elite professional services firms to digital start-ups.

Related topics Growth COVID-19
  • The purchasing managers survey points to services activity coming modestly off its August 64-month high in September, with mixed performances across sectors, although it was still at a relatively elevated level
  • The services PMI dipped to 56.1 in September (revised up from the “flash” estimate of 55.1) after improving to 58.8 in August. The September services PMI of 56.1 was still the third highest reading since December 2016
  • New business growth slowed and there was some slippage in confidence
  • While services jobs fell in September at the slowest rate since March, the decline was still significant. This provides context for the Chancellor taking further steps to support the labour market with the Jobs Support Scheme
  • The survey shows the services and manufacturing composite output index dipped to a three-month low of 56.5 in September (revised up from the “flash” estimate of 55.7) from August’s six-year high of 59.1, However, the composite output index average of 57.5 over July-September points to robust Q3 growth
  • Despite some slowdown from August, the September services and manufacturing purchasing managers’ surveys support the EY ITEM Club’s belief that the economy saw a substantial rebound in Q3 after GDP contracted a record 19.8% quarter-on-quarter in Q2. The EY ITEM Club suspects GDP growth was at least 15% quarter-on-quarter in Q3, and could have reached around 17% quarter-on-quarter
  • However, the EY ITEM Club suspects Q4 will be more challenging for the UK economy due to a likely marked rise in unemployment and pent-up demand waning. Increased restrictions on activity due to rising COVID-19 cases will also likely have some dampening impact on the economy. Additionally, business caution and reluctance to invest in Q4 may be magnified by uncertainties over the future UK-EU relationship

Howard Archer, chief economic advisor to the EY ITEM Club, says:

“Services activity was at a relatively elevated level in September, but nevertheless lost some momentum after the purchasing managers’ index had reached a six-year high in August.

“The services PMI dipped to 56.1 in September (revised up markedly from the “flash” reading of 55.1) after rising to a 64-month high of 58.8 in August from 56.5 in July, 47.1 in June, 29.0 in May and a record low of just 13.4 in April. It had previously reached April’s low of 13.4 from 35.7 in March, 53.2 in February and a 16-month high of 53.9 in January.

“September’s reading of 56.1 was still substantially above the 50.0 level that indicates flat activity. It was also above the survey’s lifetime (1996-2020) average of 54.4.

“The performance across the services sector was reportedly uneven in September. Business-to-business services was robust. Markit highlighted the strength of business services related to property purchasing, fuelled in part by stamp duty concessions.

“However, there was largely softer activity in the consumer services sector. The ending of the ‘Eat Out to Help Out’ scheme led to reduced demand in the restaurant sector, as Markit observed: “many other consumer services activities showed a similar slide back into contraction as renewed lockdown measures were introduced, causing the overall rate of expansion to moderate.”

“New business growth was decent in September as market conditions were reported to have continued to improve in many sectors, notably including in real estate. However, there was a slowdown in new business growth from August, when levels reached their highest since December 2016 – this largely reflected the withdrawal of the Government's ‘Eat Out to Help Out’ scheme, an introduction of some tighter restrictions on activity and a lack of international tourism.

“Confidence in the services sector dipped to a four-month low in September, although it was still positive. This reflected increased uncertainties about the domestic economic outlook, increasing COVID-19 cases and around Brexit.

“Employment in the services sector fell at the slowest rate since March, although the decline was still appreciable. This provides context for the Chancellor’s further support for the labour market with the Jobs Support Scheme.

“Prices charged by services companies were cut modestly in September, suggesting a need to price competitively to gain business. Input prices rose at a reduced rate, partly reflecting subdued wage costs. Nevertheless, services companies’ margins were still squeezed.”

Composite services and manufacturing output index points to UK economy improving markedly over Q3, but losing momentum in September

Howard Archer adds: “The composite output index for manufacturing and services dipped to a three-month low of 56.5 in September (revised up from the “flash” reading of 55.7), after rising to a 72-month high of 59.1 in August from 57.0 in July, 47.7 in June, 30.0 in May and an all-time low of 13.8 in April (the survey has been going for 22 years).

“September’s reading of 56.5 was still markedly above the 50.0 level that indicates flat activity.

“Furthermore, the composite output index average of 57.5 points to robust growth over the third quarter.”