Growth of UK service sector accelerated in March

The growth of the UK service sector accelerated in March to the fastest pace in more than a year.

Key Points:

  • Strong rise in new business supported increase of activity
  • Employment raised for first time in nine months
  • Cost pressures intensify, but charges rose only modestly leading to margin squeeze

Summary

UK service sector activity growth surged in March to its strongest for thirteen months, as companies benefited from improved business conditions, higher sales and increased enquiries. Capacity levels were tested, leading to a slight rise in employment for the first time in nine months. However, optimism regarding future activity was slightly down since the previous month.
 
Paul Smith, senior economist at survey compilers Markit: “Services activity growth surprised well to the upside in March, and points to the strongest expansion of the sector since the economy was surging out of its recession early last year. Allied to a robust underlying growth trend in manufacturing and the recent improvement in construction, we look for GDP in Q1 to have rebounded by as much as 0.8% on a quarterly basis in the first quarter.

“Some encouraging news on the employment front was also provided by today’s PMI data, with job creation recorded for the first time in nine months. But the rise was only very marginal, suggesting that service providers remain very cautious about expanding headcounts in the face of numerous economic headwinds.

“The degree of confidence regarding prospects for the year ahead dipped lower, and cost pressures remained elevated, leading to doubts over whether the rate of services growth seen in March can be sustained in the coming months.”

David Noble, chief executive officer at the Chartered Institute of Purchasing & Supply: “A complex array of forces were at play in the UK services sector last month, resulting in the strongest rate of growth for over a year but also a further squeezing of profit margins. Where possible companies tried to avoid passing on higher costs due to highly competitive market conditions.

“Leading performers such as business services seem to have been riding on the coat-tails of a stronger UK manufacturing sector in Q1; and meanwhile overseas demand for IT & Computing continued to boost confidence in that sector.

“It’s encouraging to see a marginal increase in recruitment for the first time in nine months but there are likely to be a few wobbles to come, not least as businesses wait to see the true impact of government spending cuts over the summer months.”
 

Comments

Economy

Nash Vermont | | Permalink

That's encouraging news amidst all the gloom surrounding Europe.

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