By Daniel Hunter

UK service sector activity continued to rise in September, in line with a solid gain in new business. Anecdotal evidence suggested an underlying improvement in demand and a post- Olympics boost to business activity.

Growth rates remained below trend, however, and companies were able to largely keep on top of workloads with fewer staff. A net fall in employment was recorded for the first time in ten months.

After accounting for seasonal factors, the headline Business Activity Index recorded 52.2 in September. That was down from August’s 53.7, but still above the 50.0 no-change mark for the twenty- first successive month.

A solid increase in volumes of incoming new business supported the latest rise in activity. Growth was the sharpest since May, with panellists noting an improvement in demand. This in part reflected a natural bounce in market activity following an Olympics-related lull.

Despite ongoing growth in September, a number of panellists reported that operating conditions were challenging. This ensured that growth rates of activity and new business remained below their historical averages.

Companies adopted a cautious attitude when it came to employment decisions, generally choosing not to replace leavers. Subsequently, payroll numbers were down modestly — the first contraction since last November. There were some reports that staffing levels were naturally cut as companies sought to keep control of overheads and persist with restructuring programmes.

“Activity in the services sector continues to occupy positive territory, though growth levels remain below trend, signifying that there is still fragility," said David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply.

"However, the sector has been bolstered by robust new business volumes, demonstrating that there is more traction in the sector.

“These figures therefore augur well as we round off the third quarter. With no Bank Holidays until Christmas and the Olympics finished, we now have a three month clear run, without disruptions, to try and get a sense of where the sector — and the economy — really is.

“Hopefully September’s figures will translate into sustainable growth in the fourth quarter as there are no longer any mitigating circumstances (aside from the weather) to blame the economy’s poor performance on. Quarter four will therefore be very revealing.”

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