UK services 'press pause' on growth

5 April 2016

UK services growth picked up slightly last month but so far this year the sector has shown the lowest output expansion since 2013, according to figures.

The Markit/CIPS UK Services Purchasing Managers’ Index, where readings above 50 signal growth and below 50 indicate a contraction – rose to 53.7 in March, from a 35-month low of 52.7 in February.

However, growth in the first three months of 2016 was the weakest since quarter one in 2013. 

Global economic uncertainty and the upcoming referendum on EU membership were cited as factors negatively impacting on the sector’s expectations. Employment in the sector continued to rise, but at a rate that was similar to February’s recent low, according to the figures.

New business increased at the slowest rate since January 2013, the data showed. 

In March average input prices rose at the fastest rate since September 2014, impacted by higher labour costs, rents and fuel prices. However, input price inflation remained below the long-run survey average. Prices charged by service providers rose at the fastest rate in over two years.

Growth in the sector will remain sluggish moving into the second quarter of the year, according to the research, and optimism in the service sector was among the weakest registered over the past three years.

Chris Williamson, chief economist at Markit, said the upturn in the rate of service sector growth in March was not enough to stop the PMI surveys collectively indicating a slowdown in economic growth in the first quarter. The surveys pointed to a 0.4% increase in GDP, down from 0.6% in the final quarter of last year.

“Business confidence remains in the doldrums as concerns about the global economy continue to be exacerbated by uncertainty at home, with nerves unsettled by issues such as Brexit and the prospect of further government spending cuts announced in the Budget,” said Williamson.

David Noble, group CEO, CIPS, said the sector seemed to have pressed “pause” on significant progress during March.

“Though the index was still in positive territory, the impact of increased competition, uncertainty over Brexit and new buy-to-let and stamp duty rules possibly cooling the housing market, showed that there was less appetite for a more robust response in activity,” he said.

“Business optimism remained relatively subdued, showing that current caution and hesitancy to commit to larger investments is having some effect on the sector.”

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