Service sector rebounds in July

The UK’S service sector expanded at its fastest rate for five years in July as the easing of lockdown restrictions helped to drive a rebound in activity.

The closely watched IHS Markit/cips services purchasing managers’ index rose to 56.5 from 47.1 in June.

However, the figure was marginally lower than analyst expectations of 56.6. Any figure above 50 represents expanding business activity.

Service providers saw activity surge after being boosted by the reopening of nonessential retailers in midjune and a raft of leisure and hospitality businesses at the start of July. Around 38 per cent of respondents reported an increase in business activity during the month, with only 24 per cent reporting a decline.

However, it said that some firms noted that “output had simply risen from an extremely low base” as concerns remain over the length of time the economic recovery will take. The survey also found that around a third reported a drop in employment, while only 11 per cent signalled an improvement.

Tim Moore, economics director at IHS Markit, said: “UK service providers are starting to see light at the end of the tunnel after a record slump in business activity during the second quarter of 2020.

“However, these are still the very early stages of recovery and survey respondents often commented on achieving growth from an exceptionally low base.”

Jeremy Thomson-cook, chief economist at Equals, said the headline sentiment number was “indeed positive”.

He also commented: “The issue remains the sustainability of this recovery given the increase in sectoral redundancies and a likely cessation of wider investment until the horizon is seen more clearly, with anything from further lockdowns to Brexit confusion likely to keep businesses in a state of caution.”