7 April 2017 09:00
Service sector springs forward
Positive growth figures in March suggest that the UK service sector growth is enjoying a rebound after a difficult few months.
The IHS Markit/CIPS Services PMI Business Activity Index picked up from 53.3 in February to 55.0 in March and both business activity and incoming new work rose at the strongest rates so far in 2017.
Overall, the survey found that respondents are optimistic about the business outlook in the year ahead, with almost half of the survey panel forecasting growth and only one in nine expecting a fall in activity.
The positive news has been linked to favourable UK economic conditions and greater client demand. In addition, exchange rate depreciation had boosted sales enquiries from abroad, especially the US.
However, intense cost pressures continued in March, which led to the fastest rise in prices charged by service sector firms since September 2008. And some companies continued to cite Brexit-related uncertainty as a factor holding back investment decisions.
Within the service sector, the worst performance so far this year has been seen in consumer-oriented sectors, such as hotels and restaurants, and personal consumer services (including gyms and hairdressers). The greatest resilience has been seen in financial services.
Chris Williamson, Chief Business Economist at IHS Markit, said:
"The survey data indicate that UK business activity growth regained some momentum after having slipped to a five-month low in February, but the upturn fails to change the picture of an economy that slowed in the first quarter."
The survey also shows that the rate of job creation in the service sector was the weakest recorded since August 2016. Some firms noted that squeezed margins and rising wage bills had led to the non-replacement of voluntary leavers.
Duncan Brock, Director of Customer Relationships at the Chartered Institute of Procurement & Supply, said:
"A dark blot on the sector's performance was the lifeless job creation … the demand for higher wages bore down on profits and new staff hiring. So, the sector's stalwart performance this month will need to improve significantly, before businesses raise their headcounts further."