UK services 'resilient' as eurozone slumps

A mixed picture on the fortunes of the services sectors across Europe emerged on Monday with the publication of purchasing managing indices (PMI) for September.

David Sapsted

5 October 2020

While the PMI for the UK sector proved unexpectedly resilient last month, the eurozone reading plunged below the 50 mark, the separating line between growth and contraction.In Britain, the IHS Markit/CIPS index for services, which does not cover retailing, stood at 56.1 in September, above economists' expectations although slightly down from the previous month's 58.8, which was a five-year high.The composite PMI, which includes manufacturing data released last week, fell to 56.5 from August’s six-year high of 59.1, again a smaller drop than expected.“The UK service sector showed encouraging resilience in September, with business activity continuing to grow solidly despite the government’s ‘Eat Out to Help Out’ scheme being withdrawn,” said Chris Williamson, IHS Markit chief economist."Latest data indicated that employee numbers in the UK service sector continued to fall. Whilst easing to the slowest since March, the rate of job losses was again marked amid evidence of ongoing spare capacity despite some tentative evidence of emerging capacity pressures: backlogs of work increased modestly during September, and for the first time in two years."The news from the eurozone was not so good with the PMI falling to 48.0 from 50.5 in August, with France, Italy, Ireland and Spain all reporting worsening conditions amid renewed outbreaks of Covid-19.Mr Williamson said: “With the eurozone economy having almost stalled in September, the chances of a renewed downturn in the fourth quarter have clearly risen."Spain has been especially hard-hit as rising Covid-19 case numbers led to further disruptions to daily life. With the exception of the March-to-May period at the height of the first wave of infections, Spain’s service sector contraction in September was the largest recorded since November 2012."However, renewed service sector downturns were also recorded in France and Ireland, while a near stalling was recorded in Germany, underscoring the broad-based geographical spread of the worsening service sector picture. Virus containment measures remained particularly strict in both Spain and Italy during September, and were also tightened in France and Germany."Ireland's services sector shrank last month for the first time in three months as the government re-imposed new restrictions in Dublin on September 18, banning indoor restaurant dining and advising people to work from home. The AIB/IHS Markit PMI fell sharply from 52.4 in August to 45.8 last month."The recovery in the Irish services economy petered out in September amid rising virus cases and economic uncertainty," said Oliver Mangan, chief economist at AIB. "Companies linked weak demand to Covid-19 restrictions, economic uncertainty and difficulty in completing new sales due to longer decision-making by clients."