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Services sector stuck in severe downturn

Lizzy Burden
Empty Guildford high street

The crucial services sector was hammered again last month although the pace of decline was slower than in April as lockdown rules were eased, according to a closely watched survey of firms.

Activity shrank sharply again in May, the purchasing managers' index (PMI) showed. It recorded a reading of 29 for the month, up from all-time lows of 13.4 in April but still far below the 50 mark that signals growth.

Demand was lifted by the gradual reopening of the economy, particularly the construction sector. But businesses remain deeply gloomy about the year ahead, despite expectations rising to a three-month high.

Tim Moore, of survey compiler IHS Markit, said: “A number of firms cited limited opportunities to win new orders with clients placed on furlough, as well as a hit to workloads from the postponement of new projects.

"Consumer demand also remained very subdued, with large areas of the service economy still in the planning stage of restarting business operations.”

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the chances of a quick "V-shaped" recovery remain slim.

However, he said the index may be overstating the sector's woes because it tends to be heavily influenced by the mood of bosses and this might not fully reflect facts on the ground. Last year the PMIs suggested a hit from Brexit jitters but services output actually increased.

Mr Tombs also pointed to a slight increase between May's initial "flash" reading and the final one, which he said implied an improvement in business conditions at the end of the month.

In China the services sector returned to growth last month for the first time since January, although employment and overseas demand remained weak. The Caixin/Markit manufacturing PMI rose to 55 from 44.4 in April, reaching the highest level in a decade.

The return to expansion was driven by a jump in new domestic business although export orders fell for the fourth consecutive month.

China’s composite manufacturing and services PMI rose to 54.5 in May from 47.6 in April.

Wang Zhe, senior economist at Caixin Insight Group, said: "In general, the improvement in supply and demand was still not able to fully offset the fallout from the pandemic, and more time is needed for the economy to get back to normal."