U.K. services business activity stabilizes in December, PMI index rises to 50

The service providers in U.K. showed that business activity remained the same in December after a slight reduction in the prior month. The seasonally adjusted IHS Markit/CIPS U.K. Services PMI Business Activity Index rose to 50 in December from November’s 49.3, hinting at a stabilization of overall service sector activity.

Furthermore, the latest reading was higher than the earlier ‘flash’ estimate for December. Some survey respondents saw a stimulus to activity from increased underlying customer demand in December. In the meantime, the ones recorded a fall in output cited a headwind from delayed spending decisions ahead of the general election.

Data for December showed a modest overall growth of new work received by service sector firms, which ended a three-month period of fall. Anecdotal evidence implied that domestic political uncertainty in the run up to the general election was the main factor being a drag on new orders. Furthermore, export sales fell for the fourth straight month in December, which was often attributed to the lack of clarity in relation to Brexit.

There were signs that service providers have become hopeful that a more stable political backdrop might help to underpin business conditions over the course of 2020. This was underlined by a recovery in business optimism to its highest since September 2018, with a number of survey respondents predicting a short-term boost to business activity when the first stage of Brexit is resolved.

Increasing workloads and a rebound in business sentiment supported a marginal rise in staffing levels throughout the service sector in December. The latest upturn in employment was the most rapid for five months, in spite of reports implying that increased business uncertainty ahead of the general election had encouraged the non-replacement of some voluntary leavers.

Backlogs of work dropped for the 15th straight month in December, although the pace of fall was only modest. Service providers often cited enough spare capacity to complete new and outstanding orders.

In the meantime, latest data hinted at a solid rise in average cost burdens, with the pace of inflation rising up from the 39-month low seen in November. Increased input prices were modestly linked to stronger wage pressures and a corresponding rise in staff salaries.

Nevertheless, prices charged by service sector companies rose a bit in December, and the pace of inflation decelerated to its softest since February 2018.