Services sector growth slows to sevenmonth low

GROWTH in the Irish services sector eased to a seven-month low in October.

A slowdown in the rate of expansion in new orders and strong inflationary pressures contributed to the sector’s weaker performance.

This is according to the latest Services Purchasing Managers Index (PMI) from IHS Markit.

It follows last week’s manufacturing data which showed that output in the sector also increased at the slowest pace in seven months in October.

Overall the PMI – an indicator designed to provide a single-figure measure of the health of the services industry – posted 57.2 last month, down from 58.7 in September.

Any reading over 50 is deemed growth, therefore the data still signalled a substantial monthly increase in activity across the sector.

Similarly, business activity in the UK slowed to its lowest level since March.

However, unlike in Ireland – where firms expressed optimism – UK firms’ expectations for the coming year are the gloomiest since just after the 2016 Brexit vote.

Britain’s economy has slowed since the June 2016 referendum, and yesterday’s data added to signs that a patch of solid consumer-led growth over the summer months is now fading as firms in the UK focus on risks from Brexit and warning signs about the global economy.

At home, volumes of new work from abroad continued to increase strongly, albeit at a slower pace than in September.

Despite concerns around Brexit, panellists commented on increased orders from the UK as well as overseas.

Meanwhile, both input prices and output charges increased at quicker rates during October.

Anecdotal evidence from the panellists suggests that rising material prices was the principle factor behind the increase in costs. Also noted by firms were increased fuel and agricultural costs.

To protect their margins firms reported passing on the increases in business costs to their customers.

Meanwhile, job creation in the sector picked up to a 10month high, with evidence from panellists indicating that an increased level of customer orders and investment encouraged them to hire additional staff during the month.

This was the 74th month of continuous job creation in the sector.

Looking forwards and service sector companies in Ireland remain broadly optimistic regarding their levels of business activity over the coming months, with almost half of firms expressing confidence that their output would increase in the next year.

This positive sentiment was largely aided by hopes of greater customer orders, especially from the UK, as well as an improvement in the overall Irish economy.