Overall business activity rises marginally in November, employment numbers fall for second month in a row Weakest outlook for output growth in nearly two years Business optimism has fallen to its lowest since December 2022 and November data pointed to a continued loss of momentum across the services economy, with business activity and new orders expanding at weaker rates than the previous month.
Meanwhile, confidence about the outlook for business activity over the next 12 months fell to its lowest since December 2022 and employment fell for the second month in a row. Survey respondents widely commented on the negative impact of rising payroll costs on customer demand, staffing plans and business confidence.
The seasonally adjusted S&P Global UK Services Business Activity Index came in at 50.8 in November, down from 52.0 in October and the lowest reading in 13 months. While this indicated a slight increase in business activity.
the rate of growth was the slowest since the current phase of expansion began in November 2023. Many service sector firms pointed to headwinds to growth due to heightened economic uncertainty and concerns about tax hikes announced in the autumn budget.
New business volumes rose for the 13th consecutive month in November, partly due to resilient consumer spending. However, the rate of expansion was only modest, the weakest recorded since the pre-election slowdown in June. Some firms indicated that new projects and investment plans had been put on hold amid concerns about the business outlook. New work from abroad also increased at a weaker pace in November.
despite some reports of increased demand from US customers.
Input prices rise sharply across the service economy
Employment levels fell slightly in November, albeit at a slower pace than the previous month. Survey respondents widely commented on hiring freezes and the failure to replace voluntary leavers in response to strong wage pressures and upcoming increases in employers’ National Insurance contributions. Lack of pressure on business capacity and ongoing efforts to improve operational efficiency were also factors holding back demand for staff.
with backlogs of work falling for the 18th consecutive month.
Business expectations for the year ahead remained in positive territory, but confidence fell sharply from October to a 23-month low. This was largely linked to concerns about rising payroll costs and subsequent declines in business investment. Some firms also cited the prospect of higher inflation and higher borrowing costs over the next 12 months.
Finally, the latest survey data pointed to a sharp rise in input prices across the services economy. Cost inflation accelerated to its fastest rate since April. Efforts to pass on rising payrolls, and other business expenses including energy bills.
insurance costs and technology spending, contributed to a sharp rise in production costs. The overall rate of price inflation rose to its highest since July
The economics director said: “UK service providers indicated that business activity was on the verge of recession in November.
with growth slowing to its slowest in more than a year. Weak sales pipelines, reduced new business and more cautious customers were cited as factors that had a negative impact on service sector output.
“According to survey respondents, weaker expansion in new business and upcoming increases in employers’ National Insurance contributions had a significant impact on staff recruitment. Total workforce numbers fell for the second month running.
with many firms indicating that pressure on margins from rising payroll costs meant they were not replacing departing staff.
Fastest rate of cost inflation since April.
Meanwhile, higher wage payments contributed to a sharp and accelerating rise in input prices, with the fastest rate of cost inflation since April.
“There was a significant drop in business optimism across the services economy.
with output growth forecasts falling to the weakest since December 2022. Concerns about the impact of policies announced in the Autumn Budget, particularly those pushing up staff costs.
were widely reported as leading to a gloomier assessment of the outlook for business investment and the wider economic outlook in the UK.”
Data collection began in July 1996.
Survey responses are collected in the second half of each month and indicate the direction of change compared to the previous month. A diffusion index is calculated for each of the survey variables. The index is the sum of the percentage of ‘up’ responses and half the percentage of ‘unchanged’ responses. The indexes range from 0 to 100.
with a reading above 50 indicating an overall increase compared to the previous month.
and below 50 an overall decrease. The indexes are then seasonally adjusted.
The headline figure is the Services Business Activity Index. This is a diffusion index calculated from a question asking about changes in the volume of business activity compared to the previous month. The services business activity index is comparable to the industrial output index. It may be referred to as the “services PMI” but is not comparable to the headline manufacturing PMI.
The composite output index is a weighted average of the industrial output index and the services business activity index. The weights reflect the relative size of the manufacturing and services sectors according to official GDP data. The composite output index may be referred to as the “composite PMI” but is not comparable to the headline manufacturing PMI.
