Service sector recovery continues in September thanks to estate agents but rate of growth slows

Confidence in the housing market helped the UK service sector continue with its coronavirus rebound in September, new data suggested today.

But the rate of growth slowed last month compared to August, following the end of the Government’s Eat Out To Help Out scheme.

Chancellor Rishi Sunak’s stamp duty holiday helped, with estate agents and related businesses enjoying strong growth to offset falls elsewhere.

The figures came from IHS Markit/CIPS’s services purchasing managers’ index (PMI) a closely followed analysis that was at 56.1 last month, down from 58.8 in August.

Anything above 50 is considered a sector in growth but, due to the coronavirus restrictions and lockdown, it fell to just 13.4 in April.

Analysts found that the growth in the sector, which accounts for four-fifths of the economy, was disproportionately hitting consumer-facing firms and benefiting business-to-business companies instead.

Chris Williamson, chief business economist at IHS Markit, which compiles the survey, said: ‘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September, with business activity continuing to grow solidly despite the Government’s Eat Out To Help Out scheme being withdrawn.

‘Unsurprisingly, spending in the restaurant sector slumped after spiking higher in August, and many other consumer services activities showed a similar slide back into contraction as renewed lockdown measures were introduced, causing the overall rate of expansion to moderate.’

He added that optimism for the year ahead had cooled, with signs that businesses are concerned about a second Covid-19 wave and uncertainty over the future trading relationship with the EU next year.  

The service sector growth was also stalled by tighter restrictions introduced during the month, and the lack of international tourists is hurting business, the survey added.

Firms said their costs increased for a third successive month to cope with the extra Covid-19 measures, including safety equipment and protection.

Lower employment costs and an increase in customer discounts to drive business were also reported.

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said some industries outperformed others although job losses remain a concern.

‘Once again job losses remained the black spot amidst these pockets of recovery. With the seventh consecutive monthly drop in job numbers, redundancies have replaced job hiring in an attempt to shield firms from rising input costs, but these strategies will devastate local communities.’

Mr Sunak warned of tax rises to come and lavished praise on ‘special’ Boris Johnson today as he tried to quell growing rumours of a feud over lockdown.

Mr Sunak again conceded that he will not be able to save all jobs, but pointed to the huge government bailouts so far and said his sole priority would be to spread ‘opportunity’.

In a bizarre ‘virtual’ address beset with technical problems, and with Mr Sunak reading awkwardly off an autocue that appeared to be in the wrong place, he also delivered a stark warning that ‘hard choices’ on tax rises and spending cuts will be needed after the immediate crisis passes.

Mr Sunak said ‘over the medium term’ the government will need to ‘get our borrowing and debt back under control’.

‘This Conservative government will always balance the books,’ he said.

The speech came after Mr Sunak risked fueling the speculation of tensions with Mr Johnson branded the 10pm pubs curfew ‘frustrating’ and insisted he had ‘no regrets’ about the Eat Out to Help Out scheme.

By contrast the PM admitted yesterday that the dining subsidies might have contributed to the sharp rise in coronavirus cases.

The two men were pictured together visiting an energy firm this morning in an apparent bid to smooth over the situation.