Manufacturing 'buoyant' but services slow, surveys find

The UK economy "regained some momentum" last month but the election and a spending squeeze weighed on the services sector, a survey has found.

The Markit/CIPS purchasing managers' index (PMI) for services fell to 53.8 in May, compared with 55.8 in April.

But a separate report found that companies were increasingly positive about the prospects for manufacturing.

The EEF manufacturers' body raised its 2017 and 2018 growth forecasts, saying demand from Europe was "buoyant".

Manufacturing growth was faster than expected in May, according to PMI figures released last week.

In comparison, the services industry was "out of sync with the other sectors which were fired up and running", said Duncan Brock of the Chartered Institute of Procurement & Supply (CIPS).

"It was clear that slower new business growth let the side down, impacted by caution around the general election, and a tightening of purse strings," Mr Brock said.

Services growth was at a three-month low, but the PMI data suggested that this was partly offset by stronger manufacturing and construction.

"Despite slower growth [for services] in May, the surveys indicate that the economy has regained some momentum in the second quarter," said IHS Markit economist Chris Williamson.

British manufacturing growth remains strong, with exports up and companies positive about prospects for the rest of 2017, according to the EEF quarterly survey.

The report, compiled with accountancy firm BDO, said that demand in European markets "looks especially buoyant", with 61% of companies surveyed reporting an upturn.

Despite Brexit fears and the election, confidence is high, the EEF said.

Unknowns

The balance between firms planning to recruit and those contracting stood at 21% during the quarter, up from 18% in the previous three months.

Optimism about future growth also rose, leading the EEF to revise upwards its forecasts. Manufacturing is now expected to expand by 1.3% in 2017 and 0.5% in 2018, up from 1% and 0.1% respectively.

EEF chief economist Lee Hopley said: "It's very encouraging that UK manufacturers have positioned themselves to capitalise on the windfall of a competitive pound and resurgent world economy."

There were, however, plenty of economic unknowns that could derail growth, she said.

The continued squeeze on household incomes and the possibility of no deal on Brexit could damage trade, Ms Hopley said.