Services firms make strong start to 2004

4 February 2004
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04 February 2004 | Gareth Mytton

Services companies in the UK made a far better start to the year in 2004 than in the previous year, according to the latest PMI figures.

The business activity index, produced by CIPS and NTC Research, rose to 59.8 in January, well above the 50 figure that indicates no change on the previous month. This time last year, concerns about the potential war on Iraq were dampening activity.

The rise in activity was the sharpest since June 1997, as surging business confidence underpinned rising activity. IT companies and business services providers enjoyed particularly big increases.

Some companies reported that deferred projects had been restarted, adding that new products had also been put on the market.

Growth accelerated in new orders (60.4) across all six services sub-sectors, owing to advertising and promotional activity, as well as client confidence.

Although companies took on more staff, backlogs developed (52.6), partly because new contracts were increasingly for long-term work.

Businesses also struggled to increase their prices, and usually blamed seasonal factors or sharply rising input costs (55.7) for doing so. In particular, hotels and restaurants suffered from higher labour costs - which hit other services companies - and a big rise in the cost of fresh food products.

In the euro-zone, services activity has now grown for seven months in a row. NTC Research's service sector business activity index rebounded to 57.3 in January from 56.6 in December, thanks to accelerating growth in Germany, France and Spain.

The picture was similar in the US, where the Institute for Supply Management's (ISM) non-manufacturing report on business put the business activity/production index at 65.7, up from 58 in December.

* More information on the UK and euro-zone PMIs is available at www.ntc-research.com. The full text of the ISM reports on the US economy for December, and previous reports, is available at http://www.ism.ws/ISMReport/index.cfm.

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