UK services rebound as Covid restrictions set to ease

7 April 2021

The UK services sector has experienced a strong rebound as firms prepare for the easing of Covid restrictions.

The IHS Markit/CIPS UK Services Purchasing Managers’ Index has soared above the 50.0 no-change level in March to 56.3, a sharp escalation from 49.5 in February. This represented growth for the first time since October 2020, and signalled the fastest expansion of output in seven months.

The forthcoming easing of government restrictions has led to significant business optimism and expectations of activity, leading to heightened demand and forward bookings. As a result, total new work has increased across the sector for the first time in six months.

Tim Moore, economics director at IHS Markit, said: “Forward bookings for consumer services and rising optimism about recovery prospects resulted in extra staff hiring across the service economy for the first time since the start of the pandemic.

“Around two-thirds of the survey panel forecast an increase in output during the year ahead, which reflected signs of pent up demand and a boost to growth projections from the successful UK vaccine rollout. Of the small minority citing downbeat expectations in March, this was often linked to uncertainty about international travel restrictions.”

The increase in new work has put pressure on firms’ capacity, and resulted in backlogs for the first time since September 2020. 

Firms have also been hit by a steep rise in costs, with input price inflation reaching its highest for nearly three years due to prices for fuel, transportation and imported materials. 

Duncan Brock, group director at CIPS, said: “Projects in suspension were re-started along with robust plans for future business as new orders rose at the strongest rate since August despite a marginal drop in exports which have remained stubbornly sluggish in recent months.

“As prices charged also rose at a sharper rate, it appears that consumers are set to mop up additional costs for fuel, shipping and raw materials as services recoup some of their losses. Businesses will have to find the right balance between protecting margins and sustaining their operations in an increasingly competitive marketplace when consumer choice returns in abundance, otherwise this big spring step forward will take a few steps back.”

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