Services sector growing at fastest rate since March 2022

5 April 2023

UK service providers are experiencing their biggest growth in order volumes since this time last year, data has found.

The latest seasonally adjusted S&P Global/CIPS UK Services PMI Business Activity Index revealed an overall score of 52.9 in March (50 represents no change).

This latest score means a figure above a "no change" rating has been registered for a second month in a row.

Rising business and consumer confidence has been attributed to this rise, with greater export sales recorded for the fourth month in a row, and March’s rate of expansion being the largest for eight and a half years.

Demand was noted to be particularly strong from clients in Europe and the US, while the report also suggested a return to more business travel also partially explains the growth.

Commenting on the data, S&P Global Market Intelligence economics director, Tim Moore said: “March data confirmed that the UK service sector returned to growth during the first quarter of 2023, supported by a sustained rebound in new orders as business and consumer confidence improved from the lows seen last autumn.”

Added John Glen, chief economist CIPS: “The biggest surge in new business for 12 months in the dominant services sector could trigger hopes that a turnaround is finally on the horizon for the UK economy.”

Business optimism for the year ahead was also improved – for the fifth month in a row – while the degree of positive sentiment regarding the outlook for business activity growth reached its highest level since March 2022.

However, there were also some less encouraging indicators identified. The data found increased business activity was not yet translating to increases in employment, with the pace of job creation in the service economy still weaker than where it was in the first half of 2022.

It found the double whammy of having to pay higher wages to existing staff, plus still-high energy costs were dampening appetite to hire additional staff – especially in an already tight labour market. All-told the report revealed yet more increases in operating costs for firms.

“Tight labour market conditions remained a constraint on business capacity across the service sector and fuelled another month of historically steep wage pressures,” reflected Moore.

On a more positive note though, overall business expenses increased at their slowest pace since May 2021 – helped by lower transport costs and falling commodity prices.

This meant that prices charged by service sector businesses increased only fractionally – by their weakest rate for 19 months – fuelling hopes that overall prices for consumers will soon start to fall.

“This is a clear signal that competitive pressures and improved supply conditions will start to bring down headline rates of inflation in the coming months,” said Moore.

Salary costs plus high interest rates (which are likely to reduce borrowing and investment levels), still indicate that tough times lie ahead, but Glen said the figures were “upbeat,” compared to last year.

He added: “Improved consumer confidence boosted levels of orders on the domestic front, while the highest rise in exports since September 2014 is another cheerful note.”

Higher levels of business activity were seen in both the manufacturing and service sectors during March, supported by a turnaround in client demand. Measured overall, new business volumes increased at the fastest pace since April 2022.

☛ Want to stay up to date with the news? Sign up to our daily bulletin.

CIPS Knowledge
Find out more with CIPS Knowledge:
  • best practice insights
  • guidance
  • tools and templates