UK service sector grows at fastest rate for over seven years

by | May 6, 2021

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The UK service sector surged in April, buoyed by the loosening of lockdown restrictions and growing consumer confidence, data published on Thursday showed.
The IHS Markit/CIPS UK services PMI business activity index reached 61.0 in April, up from 56.3 in March and the highest since October 2013. It was also ahead of both consensus and the flash estimate of 60.1.

The composite PMI output index – a weighted average of the comparable manufacturing and services indices – also rose, to 60.7 from 56.4 a month earlier. The April figure was above both analyst forecasts and the flash reading of 60.0.

In the services sector, order volumes increased for the second consecutive month and was the fastest rate of expansion since December 2013. Job creation also improved, with the sector recording the fastest increase in employment for five and half years.

Tim Moore, economics director at IHS Markit, said: “A surge of pent-up demand has started to flow through the UK economy following the loosening of pandemic restrictions.

“The roadmap for reopening leisure, hospitality and other customer-facing activities resulted in a sharp increase in forward bookings and new project starts. If the rebound in order books continues along its recent trajectory during the rest of the second quarter, then output growth looks very likely to surpass the survey record high seen back in April 1997.”

Duncan Brook, group director at the Chartered Institute of Procurement & Supply, said: “This positive trend in recovery is likely to accelerate in the coming months, but stretched supply chains remain a sticking point, along with inflation potentially biting chunks out of wages and business margins, threatening to put a brake on this fast track to economic normality.”

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The economy has a spring in its step following the partial reopening of consumer services businesses as well as shops on 12 April.

“As things stand, we think GDP rose by about 2% month-to-month in both March and April, leaving it only about 4.5% below its pre-Covid level last month.

“Services businesses are hiking prices as they reopen. Nonetheless, we are not convinced that large price rises will become the norm. Labour market slack remains ample enough for now to keep a tight lid on wages. [It] will also rise again after the furlough scheme is would up, releasing people currently tied to their employers but who have little prospect of being re-employed.

“Our view remains, therefore, that the MPC will be able to look through the approaching period of modestly above-target CPI inflation and hold back from increasing bank rate until the second half of 2023.”

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