Strong growth of activity sustained as confidence in outlook remains high

CIPS 6 May 2014

Activity and new business both increase at sharp rates

- Activity and new business both increase at sharp rates
- Employment up sharply in line with positive expectations for growth
- Cost inflation continues to weaken

April saw another marked increase in UK service sector activity, with growth again supported by a sharp increase in volumes of incoming new work.

Companies kept on top of workloads by adding to their payroll numbers, reflective in part of sustained confidence in the economic outlook.

Meanwhile, cost pressures remained relatively subdued, with input prices rising to the weakest degree for 11 months. Output charges continued to increase at a modest pace.

After accounting for seasonal factors, the headline Business Activity Index recorded 58.7 in April. That was up from March’s 57.6 and marked the sharpest increase in activity of 2014 so far. Growth has now been recorded for 16 straight months, and exactly a third of the survey panel signalled an increase in activity since March.

A key pillar of rising activity during April was higher new business. Despite slipping to an 11-month low, new work rose at a rate that remained historically sharp. Market activity was reportedly higher, with clients 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 the sustained strength in new business growth, companies were in the large able to keep on top of existing workloads. Backlogs of work increased for a thirteenth successive month, but at a marginal pace that was the weakest in the current period of expansion.

Additional capacity in part enabled relative stability in total workloads.

Employment was increased for the sixteenth successive month and the rate of expansion was the sharpest seen since last October. Over a fifth of the survey panel recorded an increase in their payroll numbers.

Apart from dealing with increased workloads, additional staff were also recruited in anticipation of growth in the months ahead. With over 53% of the survey panel expecting to see an increase in activity over the coming 12 months, business confidence was only slightly lower than February’s four-and-a-half year peak. Panellists widely expect recent growth to continue, with investment in infrastructure, new products and marketing all planned over the next year.

Price data indicated that input cost pressures continued to soften in April.

Latest data showed input prices rose at the slowest pace in just under a year. Where costs were up, a number of respondents noted paying higher wages.

Finally, output charges continued to increase during April as some companies passed on higher costs to their clients. Although at a three-month high, inflation was still modest. Strong competition and ongoing efforts to stimulate sales reportedly weighed on pricing power.

David Noble, Group Chief Executive Officer at the Chartered Institute of Purchasing & Supply:

“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.

“Owing to buoyant economic conditions, higher new business levels in April were leading the growth in activity. Alongside this, companies were also able to stay on top of outstanding business, with backlogs of work increasing at the weakest pace since March 2013. “Since the start of the year cost inflation has also continued to soften, offering firms a platform for investment in new work and stimulating sales drives. All these signs, and in conjunction with strong performances from the manufacturing and construction sectors, are confirmation of the strengthening of a broad-based recovery.”

The Markit/CIPS PMIs are available to purchase.

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