- August’s services PMI dipped to a six-month low. The weaker services survey wasn’t too surprising given that the biggest gains from reopening the economy have passed. But staff shortages are holding back economic activity.
- The end of the furlough scheme in September will help to alleviate this supply-side constraint. Meanwhile, lower COVID-19 infection numbers and less stringent self-isolation rules should help the services sector recovery.
Martin Beck, senior economic advisor to the EY ITEM Club, says:
“The August services PMI followed the manufacturing decline and slipped in August. While a PMI of 55.0 is still firmly in growth territory, it is below July’s 59.6 and is the lowest reading for six months. That the large gains from reopening the economy after lockdown have passed meant a softer pace of services growth wasn’t unexpected. But activity was also held back by staff shortages, not helped by the number of people needing to self-isolate before the rules changed. Meanwhile, rising wages contributed to cost pressures remaining elevated, if easing slightly from July’s peak.
“As economic conditions continue to normalise, the fact there is less scope to make up lost ground will weigh on services growth. But there are also some upsides: lower infection numbers and less stringent self-isolation rules will reduce virus-related economic disruption. On top of that, the furlough scheme’s closure in September should help to alleviate labour shortages, especially as sectors with high numbers of vacancies tended to have high usage of the scheme.
“Combining the services and manufacturing PMIs resulted in the composite index in August reading 54.8, the lowest figure since February. That most high-frequency measures suggested a modest gain in momentum in August means the guide provided by the PMIs to GDP growth remains fuzzy. But August’s PMIs are consistent with the EY ITEM Club’s forecast for very strong GDP growth by historical standards in the third quarter, but some way below the exceptional pace of the second quarter.”