Commenting on the IHS Markit / CIPS UK Services PMI numbers for May, Yael Selfin, Chief Economist at KPMG UK, said:
“These latest PMI figures point to a more subdued outlook for UK services. Those relying on the spending appetite of UK consumers are feeling the pressure, while export driven services still benefit from the weaker pound. The softer data for UK services contrasted with indications of a pick-up in both manufacturing and construction activity, which represent a smaller share of UK output, hence some resurgence in growth momentum this year should not be ruled out following a weak start in Q1.
“As the economy regains momentum, there may be little spare capacity to absorb a significant expansion in activity. Companies are reporting increased pressure on supply chains, and unemployment has fallen to its lowest level for over 40 years. Businesses will therefore need to reassess their operation models in order to meet stronger future demand. Despite reports of easing input price pressures, both consumerprices and wages may also increase more significantly as a result of reduced space capacity, and we could see the Bank of England raising interest rates as early as next year if inflationary pressures are considered to be more persistent.
“In addition, as exit negotiations with the EU get underway, which are expected to start in earnest after the UK elections, any perceived turns could cause confidence and growth to wobble, if only temporarily. Businesses should therefore plan for a more volatile business environment than usual.”
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