Services sector growth will 'heat up' interest rate debate

Will Green is news editor of Supply Management
6 May 2014

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6 May 2014 | Will Green

New business has pushed the UK services sector to the sharpest increase in activity so far in 2014, according to a survey of buyers.

The Markit/CIPS UK Services Purchasing Managers’ Index hit 58.7 in April, up on March’s 57.6, and representing 16 straight months of growth. A score of 50 represents zero expansion.

A key pillar of rising activity during the month was new business, and respondents reported clients were willing to commit to new contracts “against the backdrop of an increasingly positive economic climate”.

There were reports that previous and current marketing campaigns were “bearing some fruit, while new product launches provided additional support to sales drives”.

Despite “sustained strength in new business growth” companies were largely able to keep on top of workloads, with backlogs increasing for the 13th successive month but at a “marginal pace”.

Employment also increased for the 16th month in a row and more than a fifth of the panel of purchasers recorded an increase in payroll numbers.

Meanwhile, input prices continued to soften, rising at their slowest pace for just under a year, while output prices rose to a three-month high.

David Noble, CIPS group CEO, said: “Growth and momentum in UK services remained steadily bullish in April, as activity increased at the fastest rate this year. Most encouraging of all has been the increase in job creation since last October, a reflection of positive prospects of market expansion. With business confidence rising further in April, firms seem convinced that a long-term strong trend is set to continue.”

Chris Williamson, chief economist at Markit, said there was “no end in sight for the current super-strong growth spell”.

“The strength of the PMI’s output and employment readings suggest that the discussion among policymakers about when interest rates will need to start rising will heat up, especially when viewed alongside recent house price gains,” he said.


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