Hopes high for services sector recovery despite downturn

In early 2015, the PMI figures for the services sector hit an eight-month high and confidence was soaring. But in May, the sector dipped somewhat unexpectedly. So why are industry analysts still anticipating strong performance from the sector? We explore the climate within the services sector and ask if now is a good time to buy a services business.

Recent figures indicated that the services sector's rate of expansion is slowing down. The Service Sector Purchasing Managers Index (PMI) from Markit and the CIPS showed that May's index was down to 56.5 from the 59.5 high recorded in April.

The latest monthly index for June should be released in the coming few days so it will be interesting to see which direction the trend has taken in June as May’s reading was something of an anomaly given that the previous month's reading was an eight-month high.

David Noble, chief executive of the CIPS, commented on the unexpected change in the services sector: “Momentum in the sector stalled in May, with the drop in the headline index the biggest fall for almost four years and likely to cause concern as services remains the UK’s largest driver of economic growth.”

Positive Service Sector Outlook in Spite of Downturn

Analysts aren't denying that it is a little concerning to see the service sector follow suit with a bit of dip in confidence after the recent weaknesses also seen in both manufacturing and construction. But with GDP just this week (30 June) revised up from initial estimates of 0.3 per cent growth in the first quarter to 0.4 per cent growth, the PMI figures certainly aren't bringing with them the sense of anguish that might usually be expected.

Chancellor George Osborne was among those to welcome the revised data and triumph the hope for further growth in the near future: “It is clear that our plan is laying the foundations for economic security for working people, with the three main sectors of the economy growing over the past year and business investment over 30 per cent higher than at the start of the last parliament.”

Of course, Mr Osborne has a vested interest in suggesting that his policies and this government's approach are working for the economy. But he isn't the only one showing faith that the latest negativity is a blip in an otherwise upwards journey to growth.

Analysts, including Martin Flanagan of the Scotsman have suggested that in the ongoing climate of austerity, heightened by concern around the Eurozone and the highly probable Grexit, services is likely to be the sector to pull through and keep growth on track.

Mr Flanagan wrote: “It looks like the Scottish services sector is still the best bet to take up the slack as we go forward as a result. It was not exactly ever thus, but it has been for a generation.”

Buy Now to Capitalise on Future Growth

Last month, 17.4 per cent of businesses for sale listed with the Business Sale Report were classed as service sector companies and we’re seeing a strong level of interest in this sector from our subscribers.

Along with everyone else, all we can do is to make educated guesses at where the industry will go in the coming months, but we’re willing to bet that there are a decent number of success stories to be found within the services sector for those smart enough and strong enough to tough it out another few months of potential upheaval.


Check out service sector businesses for sale.

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