The Markit/CIPS purchasing managers' index for the service sector for August showed a healthy rise in activity but confidence in future prospects fell a five-month low amid increasing anxiety over Brexit negotiations.

Lack of suitably skilled applicants

Many firms also reported their activities were being hampered because “a lack of suitably skilled candidates to fill vacancies had held back staff hiring”.The index for last month recorded a better-than-expected 54.3, up from 53.5 in July, when activity was held back by a heatwave and the football World Cup.Chris Williamson, chief business economist at IHS Markit, said, "Faster service sector growth comes as much-needed welcome news after disappointing manufacturing and construction PMI surveys in August."The survey data indicate that the economy is on course to expand by 0.4 per cent in the third quarter, a relatively robust and resilient rate of expansion that will no doubt draw some sighs of relief at the Bank of England after the rate hike earlier in the month.“Business expectations for the year ahead meanwhile sank markedly lower, down across all three sectors to one of the lowest levels seen since the EU referendum, largely reflecting increased anxiety over Brexit negotiations.“Given the increasingly unbalanced nature of growth and the darkening business mood, risks to the immediate outlook seem tilted to the downside.”

A backlog of work in the service industry

The report said that the backlog of work increased for the fourth month running in August, "which pointed to sustained pressure on operating capacity at service sector companies. A number of firms linked rising volumes of unfinished business to difficulties replacing departing staff".Markit added, "This may be a sign that EU workers are heading home ahead of Brexit, or that potential migrants aren’t coming over the UK at all. Last month’s unemployment figures showed a record annual decline in migrants from the European Union to the UK."Britain’s unemployment rate is also at a 43-year low, so firms may simply be suffering from a tight labour market."

Skills shortage facing UK service sector businesses

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said he remained concerned about the skills shortage facing UK firms.“The services sector was a little more upbeat than the other sectors this month maintaining a steady level of activity growth, and the number of new orders ticked higher," he said. “Despite this, optimism was more subdued and lower than the survey average. With the weakest business optimism since March, uncertainty around the UK’s decision to leave the EU continued to dampen client operations."Struggles around securing talent and the right skills were also a drag on a sector highly-dependent on trained staff even though job creation rose to its highest levels for half a year."For related news and features, visit our Enterprise and Brexit sections.

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