Unexpected slump for the UK’s services sector adds to anxieties about the economy

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Talk of recession risk for the UK is becoming a very well-worn theme at this point, but it is also sadly true that many an accountant in Newton Abbot – and their clients – must bear such a risk in mind.

This was underlined by a closely watched survey of the country’s business output revealing a decline in August, despite economists having anticipated a modest rise after six months in a row of growth.

The poorest outcome for private-sector firms since January 2021

In certain ways, the first month of 2021 was a very different time for the UK than now; the COVID-19 pandemic was still very much ongoing, and a winter lockdown had been imposed to once again help minimise the spread of the virus.

However, data from the S&P Global/CIPS Flash UK Purchasing Managers’ Index (PMI) revealed that August 2023 was the worst month for the country’s private sector since those bleak coronavirus-affected times.

Specifically, the monthly composite PMI declined to a reading of 47.9 in August, from the 50.8 that had been recorded for July. Any reading of more than 50 is considered to indicate that the sector is growing, while anything below 50 suggests a contraction.

With August’s reading being the first time since the start of 2023 that the PMI had been shy of the all-important 50 mark – despite the consensus among economists having been a 50.3 reading for the month – there are understandable jitters among many observers that a UK recession could finally be looming.

However, it is also important for anyone currently using the services of an accountant in Newton Abbot to keep a sense of proportion about the figures. Indeed, the This is Money website stated in its reporting of the PMI result that “some economists” believed the downturn may not turn out to be as bad as the preliminary poll outcome suggests.

Both the services and manufacturing sectors struggled this time around

Nonetheless, taking those figures as they presently are, they show that activity shrunk in both the manufacturing and services sectors in August.

This contrasts with the situation in previous months, when the dominant services sector had managed to keep on powering ahead, even amid the buffeting effects of climbing inflation and interest rates (at the time of typing, the Bank of England’s base rate was 5.25%).

Unfortunately, however, August saw the UK services sector record its weakest output in 31 months. The flash manufacturing industry reading, meanwhile, was 42.5, which was the lowest for 39 months.

Looking across all industries, there was a decline in new orders for the second consecutive month, with polled firms citing a “reluctance to spend among clients in the wake of higher interest rates and stretched disposable household incomes”.

S&P Global chief business economist Chris Williamson said that the latest PMI data indicated there would be an overall 0.2% contraction in growth during 2023’s third quarter, compared to the 0.2% expansion that had been seen in the three-month period prior to that.

He commented: “A renewed contraction of the economy already looks inevitable, as an increasingly severe manufacturing downturn is accompanied by a further faltering of the service sector’s spring revival”.

For the very best accounting, tax, and related support, look no further than TS Partners

There’s no doubt about it; the environment for UK firms of all sizes, and across both the manufacturing and services sectors, continues to be exceedingly challenging.

Nonetheless, when you join forces with a suitably qualified and capable accountant in Newton Abbot, as TS Partners can provide, you can help ensure you are in the best possible position to face down and overcome many of those challenges in the weeks and months ahead.

So, please feel free to contact us at our Newton Abbot office to learn more about the wide-ranging and in-depth tax and accounting expertise we can give you the benefit of in Devon.