UK service sector continues to expand strongly in February

CIPS 5 March 2014

Activity and new business growth rates remain sharp

Employment growth strongest in four months and confidence in outlook highest since September 2009 from the Markit/CIPS UK Services PMI®.

UK service sector activity continued to rise at a healthy pace during February, supported by another marked increase in new business. Capacity remained under pressure, with backlogs up sharply and employment subsequently raised to the greatest degree since last October. Confidence in the outlook strengthened to the highest for nearly four-and-a-half years.

After accounting for seasonal factors, the headline Business Activity Index recorded 58.2 during February. That was the lowest reading since last June, though little changed on January’s 58.3 and indicative of a sharp rise in activity on a monthly basis.

Growth has now been recorded for 14 months and the latest increase in service sector output was supported by another marked rise of incoming new business. There were reports from panellists of clients becoming increasingly confident about the economic recovery. Enquiries were subsequently converted into hard business wins, and some respondents again noted that the housing market remained a source of growth. Despite reports that adverse weather in some parts of the UK had disrupted activity, others noted that the relatively mild winter had provided a support to growth.

As incoming new work continued to rise at a marked pace, capacity remained under pressure. The result was another noticeable increase in backlogs of work. Latest data marked the eleventh successive month that work outstanding has risen, with February’s growth only slightly down on January’s near 17-year peak.

Responding to increasingly stretched resources, nearly a fifth of panellists signalled a rise in staffing levels at their units. The result was another marked increase in service sector staffing levels as a whole (the sharpest since last October).

Staff were also recruited in line with ongoing confidence towards future activity. Business expectations improved for a fourth successive month to their highest level since September 2009 as around 54% of panellists recorded positive sentiment. Economic recovery was widely forecast to be sustained, and companies signalled plans to raise investment in areas such as marketing and general business expansion.

Finally, price pressures were relatively contained during February. Although input costs continued to increase, the degree of inflation was the lowest for six months as some panellists reported successful negotiations with vendors. Where costs rose, this was generally blamed on increased fuel, utility and wage bills.

Average output prices also continued to increase during February, but at a modest pace that was the weakest since last September.

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

"The UK service sector maintained the lengthening trend of consistent growth and all the signs are this is set to continue, with confidence at a four-and-a-half year high. New clients have underpinned this optimism giving firms the platform to invest in new projects and jobs. Coupled with strong manufacturing and construction results, it seems all the fundamentals are in place to deliver further economic growth cementing the economic recovery.

"The rising new business, on top of existing backlogs, does mean capacity continues to be tested. In response to this, businesses have with suppliers. As a result of this, the rate of inflation was the lowest for six months; the changing price front will be something to watch going forwards."


The Markit/CIPS PMIs are available to purchase.



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