Britain’s service sector slows as the coronavirus outbreak starts biting

The pace of new work cropping up in the country’s crucial service sector is starting to slow down amid the coronavirus outbreak, data from a closely-watched economic survey reveals. 

Figures from the IHS Markit/CIPS purchasing managers’ index showed a reading of 53.2 for February, down from 53.9 in January. A reading of 50 or above indicates growth.  

On 26 March, Bank of England policymakers will be forced to decide whether the economic picture and potential fallout from the coronavirus outbreak merits a shift in interest rates, following the precedent set by the US Federal Reserve on Tuesday. 

They may feel they need to take action sooner though, and could hold an unscheduled meeting to cut rates, as their American counterparts did.

Chris Williamson, chief economist at IHS Markit, said: ‘The survey data leaves policymakers juggling between current signs of both improved economic growth and rising prices, while risks to the outlook have clearly intensified.’ 

The construction sector saw new orders rise to the highest level seen since December 2015 last month, while output in the manufacturing sector swelled to a 10-month high. 

Williamson said the coronavirus outbreak was triggering ‘lower travel and transport business volumes’ in the service sector, and having a wider impact via ‘reduced confidence and financial market volatility.’ 

Supply shortages are also starting to limit the capacity of businesses in the sector to fulfill orders properly, he added.  

Alongside the fallout from the coronavirus outbreak, the service sector, which accounts for over three quarters of all activity in the economy, is also on tenterhooks as the UK’s trading relationship with the EU ‘lurks in the background’ as a risk to exports.   

Business activity, new orders and employment levels all started to rise at a slower pace last month, the new data shows.  

While the service sector has seen the pace of new work coming through slow, overall, it enjoyed the second best month since September 2018. 

Optimism in the sector reached its highest level since March 2015 last month, but this looks set to be tempered as the fallout from the coronavirus outbreak grows. 

Pressure on margins led service sector companies to charge clients the highest prices seen since November 2017. 

Howard Archer, chief economist at the EY Item Club, said: ‘The purchasing managers’ surveys indicate slightly slower but clear expansion in February. 

‘There continued to be reports that a lift to client willingness to spend and business activity was coming from reduced political uncertainties following December’s decisive election and greater near-term clarity on Brexit with the UK leaving the EU on 31 January with a deal.’

He added: ‘The February services survey was generally still encouraging across the board even though it showed some ‘softening’ compared to January’s picture.’

Meanwhile, Allan Ramsay, head of business services at Lloyds Bank Commercial Banking, said: ‘While confidence has continued to grow in the last month, with businesses perhaps still riding the wave of the Boris-bounce, the services sector is all too aware of the uncertainty and trickle-down turbulence posed by the spread of coronavirus.

‘With this in mind, many are investing cautiously for growth in the year ahead while ensuring they have appropriate reserves in place should the impact of COVID-19 become increasingly disruptive.’