05 April 2006 | Anusha Bradley
UK services firms experienced a sharp rise in activity in March due to strong growth in new business.
The CIPS/RBS Purchasing Managers' Index (PMI), in which an index above 50 indicates growth, recorded a reading of 57.4. This was slightly down from February's 22-month high of 58.9.
The new business index posted a reading of 57.2, as increased sales and marketing campaigns helped companies to win new contracts.
Soaring labour and utilities prices led to the sharpest acceleration of input cost inflation in six months, driving up overall operating costs. This was reflected in the input prices index, which reached a six-month high of 60.8.
However, a number of firms reported that robust demand for services meant they were able to cover the increased input costs.
Activity was particularly strong in the financial, IT and business services sectors, compared with more subdued performances in the consumer-orientated hotels & restaurants and personal services sectors.
The sustained growth of new business placed some pressure on firms' capacity to deliver, and levels of outstanding work rose for the fourth successive month. This drove up employment levels in the UK service sector for the thirty-second month in a row.
There was, however, a fall in business expectations. This index posted a reading of 72.9, its lowest in four months.
Roy Ayliffe, director of professional practice at CIPS said: "Confidence about the future performance of the sector was tempered by fears over the health of the wider UK economy, with spiralling operating costs also contributing to the subdued outlook."