'Stellar' growth for UK services

4 May 2017

The UK service sector saw a sustained rebound in business activity last month, including the fastest increase in new work so far this year.

The Markit/CIPS UK Services PMI results for April marked a strong start to the second quarter, with job creation at a four-month high. Last month also saw the fastest upturn in output for the sector this year.

The PMI rose to 55.8 in April, up from 55.0 in March. A score above 50 indicates growth in the sector, a score below suggests contraction. The results mirrored strong April results in the construction and manufacturing sectors.

Duncan Brock, director of customer relationships at CIPS, said: “The UK’s biggest sector started Q2 in stellar fashion with the strongest performance so far this year and with new business growth riding high.”

A supporting economic backdrop with resilient demand domestically and abroad helped to boost the sector, and the sector’s positivity about additional growth in the following coming months was signalled by one of the fastest rates of staff recruitment since last summer.

The PMI survey found nearly half of service providers (47%) expected a rise in business activity, compared to just 12% expecting a fall.

But the survey also indicated business optimism was at its lowest levels for five months, attributed by some firms to the impact of inflation on household budgets. “The driver of growth came primarily from business clients, as consumers took a back seat, uneasy about rising costs for essentials,” said Brock.

Service providers also indicated a strong rise in input costs last month, linked to higher utility bills, salary payments and food prices, causing prices to increase at their fastest pace since July 2008.

Chris Williamson, chief business economist at IHS Markit, said: “Price hikes were widely attributed to the need to pass increased costs onto customers, in turn partly linked to the weak exchange rate making imports more expensive.”

Prices and supply chain pressures would be the focus for businesses in the coming months, said Brock. “It is the consumer who will make or break the sector’s progress, if the political headwinds are favourable, disposable incomes improve and the pound’s lacklustre performance improves,” he said.

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