Index of services

Over the five-year period through 2025-26, the IoS is forecast to increase at a compound annual rate of 3%. Since comparable ONS records began in January 1997, the IoS has only recorded two full fiscal years of decline - 2008-09 (-1.6%) through 2009-10 (-1.6%) – during a period in which the UK economy was in deep recession borne out from the financial crisis; meanwhile, the IoS posted year-on-year growth in every other year through 2019-20. The UK services sector has become vital to UK economic growth and prosperity, typified by the ONS' declaration that the UK service sector's contribution to gross domestic product (GDP) had increased from just 46% of GDP in 1948, to 80% of GDP in early-2021. In recent history, there have been a number of factors which have given impetus to expansion in the UK service sector's GVA. These stimuli include, albeit not limited to: a sustained increase in underlying demand for services; disruptive technologies (e.g., fintech, gig economy); increasing complexity of the business environment and the consequent need for assistance - modern businesses now hold professional services (e.g., consultancy, training, marketing) that can ignite and enhance business performance in high regard -; and evolving business models. Advocated in the "Services Transformed: Growth Opportunities for the UK Service Economy" report commissioned by Government Office for Science, "just as manufacturing and production were disrupted by the industrial revolution of the 18th and 19th centuries, the information revolution is now disrupting the provision of services. Service industries around the world are being disrupted by both information technologies and the new business models that come with them" - disruption in the services sector, attributed to outsourcing, automation and digital-based business that have augmented traditional business models, has translated into growth in the services sector.

Prior to an exogeneous economic shock consequent of the COVID-19 (coronavirus) pandemic, the IoS continued its long-term upwards growth trend, driven by continual evolution of, and increased reliance on, services across the economy, from wholesale and transportation to professional services and financial services. The IoS grew by 2.1%, 1.5% and 0.8% year-on-year in 2017-18, 2018-19 and 2019-20 respectively. Since the UK electorate voted to withdraw from the EU bloc in June 2016, uncertainty swept across the UK markets - economic prospects became subdued - whereby reduced sentiment and risk aversion ultimately led to reduced new orders and pressure on relevant key performance metrics across the services sector. In 2020-21, however, the UK service sector's economic contribution came under the cosh from unprecedented market disruption caused by the coronavirus pandemic. The IoS recorded a 9.6% year-on-year decline in 2020-21 alone, with the index averaging 90 points over the fiscal year, having not been lowest since 2013-14 (87.7 points).

According to the ONS, the IoS recorded a 7.8% and 16.7% monthly decline in March 2020 and April 2020 respectively, the latter of which represented the largest monthly decline since comparable records began in January 1997. On an annual basis, services output in April 2020 was down 22.7% compared to April 2019. Spring 2020 lockdown measures imposed by the government, which ranged the forced closure of non-essential businesses to mandated social distancing measures and trade restrictions, decimated lead generation in several service sectors. While some industries outperformed the wider economy due to their essential nature (e.g., financial intermediation, distribution, healthcare transportation and communication), this failed to counterbalance drastic downturn in severely hit industries, particularly bricks-and-mortar retail and wholesale trade and hospitality markets. Post-Spring 2020 lockdown, restrictions were relaxed, modified and reinstated ad hoc, epitomised by intermittent lockdown periods, the second of which was mandated between early-November 2020 through early-December 2020, and the third of which was officially in effect since early-January 2021, with the government's roadmap out of said lockdown being in effect since 8 March 2021 and now with a view to all restrictions being abolished on 19 July 2021. While lockdown periods subsequent to that in Spring 2020 did cause volatility in service sector output through 2020-21, permission for businesses to resume trading, businesses adapting to a new trading environment during the pandemic, and stimulus support measures introduced by the government allowed services output to recover, to a certain extent. In May 2021, the IoS was up 26.1% year-on-year, having reached 98.5 points compared to the 78.1 points recorded in May 2020; however, reflecting lingering challenges in the services sector, which have ensued since the onset of the pandemic, monthly services output in May 2021 was still 1.7% below that in February 2020, the previous month of "normal" trading conditions in the United Kingdom prior to coronavirus.

Heading deeper in 2021-22, over the course of which the IoS recovered by 11.7% to reach 100.5 points, indicative market recovery, in tandem with the reopening of the economy, which released the pent-up demand across the services sector and help entities in the aforementioned sector recoup coronavirus-related losses. However, over the course of 2022-23, the growth in the IoS is expected to ease significantly, growing by a projected 0.8%, to reach 101.3 points. This is a product of an array of macroeconomic headwinds the UK will be faced with over the current year. These include rising inflation partially caused by the Ukraine-Russia fuelled energy and supply chain crisis which is set to exceed wage growth, dampening real household disposable income. In turn consumer and business confidence is expected to be subdued over the current year, while the Bank of England have stated that CPI inflation could reach 13% in 2022 with the UK economy likely to enter a recession at the end of the year. Hence, any expansion in the IoS is expected to be mediocre over the current year.