UK services growth hits eight-month high

CIPS 6 May 2015

Expansion of business activity accelerates further at start of second quarter.

Markit/CIPS UK Services PMI®

Key Points:

  • Expansion of business activity accelerates further at start of second quarter
  • Firms cut prices at fastest rate since February 2012
  • Rate of job creation remains robust despite easing to four-month low 

Service providers in the UK began the second quarter of 2015 on a solid footing, according to the latest PMI® survey data from Markit and CIPS. Business activity increased at the fastest rate since August 2014, driven by a further marked rise in new business. Employment growth remained strong and sentiment was at an elevated level despite some uncertainty linked to the forthcoming General Election. The survey highlighted rising pressure on margins, however, as output prices fell for the first time in six months but input prices continued to rise solidly on the back of wage pressures. 

The headline figure for the survey is the seasonally adjusted Markit/CIPS UK Services Business Activity Index, a single-figure measure designed to track changes in total UK services activity compared with one month previously. Readings above 50.0 signal growth of activity compared with the previous month, and below 50.0 contraction. The Business Activity Index rose for the second month running in April to 59.5, from 58.9, signalling the fastest rate of service sector expansion since August 2014. Activity in the sector has now risen for 28 successive months, the longest sequence of growth in seven years. The Index remained comfortably above its long-run average of 55.2 in the latest period. Firms linked higher activity to new business wins, improving economic confidence and warm weather. 

The volume of new business received by UK service sector companies also rose for the twenty-eighth consecutive month in April. The rate of expansion was broadly in line with the robust average over this period. Firms reported successful marketing campaigns and a number mentioned large contract wins with major clients. 

The underlying strength of business conditions in the UK service sector was shown by a further marked rise in employment in April, and higher levels of outstanding business. The current sequence of backlog growth, at 25 months, is the longest recorded in the survey history. Service providers remained strongly optimistic about output expectations over the next 12 months. Sentiment eased slightly since March, linked to uncertainty surrounding the forthcoming election, but remained strong overall. Firms forecast growth through both organic means and acquisitions, marketing drives, new service launches and winning new clients.

April data indicated another solid increase in average input costs, mainly attributed by firms to wage pressures. That said, input price inflation remained weaker than the long-run survey average. Meanwhile, prices charged by service providers fell for the first time since last October and at the fastest rate in over three years, generating pressure on margins.

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

“The services sector offered a more upbeat level of performance than the other sectors this month and demonstrated a continued assurance in the growth of the UK economy. New business was the primary driver of activity, even amidst increased competition, more marketing activity, the scrabble for good staff and the availability of raw materials. 

“The numbers of in-house staff increased as firms continued to strive towards holding on to the margins recently eroded by the reliance on more expensive contractors. The desire to hold on to skilled employees was also in evidence for the long-term view and this appeared at all levels - ranging from apprenticeships to more senior grades.

“One underlying concern was the sustained increase in backlogs with the current sequence now in its twenty-fifth month – the longest since the survey began.

“However, healthy levels of positivity in future business opportunities continued and with the looming General Election offering just a minor bump in the road of confidence, the sector looks set to maintain its strong lead in the months ahead.”

The May Report on Services will be published on Wednesday 3rd June 2015 at 09:30


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