U.K. services PMI index rebounds in October, overall sentiment remains weak

The U.K. services sector activity rebounded in October. The services PMI index rose to 50 in October, as compared with consensus expectations of 49.7. This is a rise from September’s six-month low of 49.5. Still, around these levels the services PMI continues to be below its long-term average, and considerably down on the levels seen in the past year, implying that the overall sentiment throughout the sector stays subdued.

The report’s details also underlined some disappointing trends. The new business orders component remained below the key 50 level for the second straight month, while new export business remained below 50 for the eighth straight month.

Therefore, these dynamics imply that the support to activity throughout the services sector last month, possibly stemmed from companies working through their backlogs of work as the pace of new business continued to ease back.

However, looking ahead, an environment where new business orders stay soft and outstanding work backlogs are falling does not augur well for the activity outlook in the months ahead, noted Lloyds Bank in a research report. Accordingly, companies reacted to this weaker backdrop by continuing to hold back on job creation.

Service sector companies showed greater optimism in the longer-term outlook. The future activity index, which measures firms’ expectations for output over the next 12-months, moved up to a three-month high of 61.6, likely reflecting a fall in the perceived likelihood of the U.K. leaving the EU without a deal in the near term.

“The overall subdued nature of the PMIs across October is a reminder of the drag that persistent uncertainty can have on the economy”, added Lloyds Bank.