UK services notch up further growth

The UK's all-important services sector, which accounts for about 80 per cent of the nation's GDP, recorded healthy growth during March for the second month in a row, boosted by the best export performance for almost a decade and a return to business travel.

Transportation, Trading, Stock Market Data, Growth, Moving Up

David Sapsted

5 April 2023

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Analysts said the S&P Global/CIPS Services Purchasing Managers' Index (PMI), which was published on Wednesday, indicated that, despite forecasts to the contrary, the UK economy appears to have grown over the first quarter of the year.The PMI also found that the services sector recorded the strongest new business expansion in a year and the best export performance in almost a decade.

Further sign of economic recovery?

John Glen, chief economist at the Chartered Institute of Procurement and Supply (CIPS), said the figures appeared to have the hallmarks of an economic recovery."The biggest surge in new business for 12 months in the dominant services sector could trigger hopes that a turnaround is finally on the horizon for the UK economy,” he said.“Underlined by the continuing upward trend from last month’s robust levels of overall activity and March’s strong business optimism amongst respondents also had a positive effect.”

UK exports and business travel boost economy

S&P Global said that March's PMI reading of 52.9 in an index where a reading over 50 indicates growth, confirmed that the service sector had returned to growth in the first quarter after slumping last autumn."Export sales provided an additional boost to the service economy during March as the ongoing recovery in business travel and events helped to drive the fastest rise in new orders from abroad for at least eight-and-a-half years," added Tim Moore, economics director at S&P Global Market Intelligence."Tight labour market conditions remained a constraint on business capacity across the service sector and fuelled another month of historically steep wage pressures. However, overall business expenses increased at the slowest pace since May 2021 as lower transport bills and falling commodity prices helped to offset rising staff costs."Prices charged by service sector businesses increased at the weakest rate for 19 months in March, which provides a clear signal that competitive pressures and improved supply conditions will start to bring down headline rates of consumer price inflation in the coming months."

Can UK growth be sustained this year?

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the composite PMI for all sectors of the economy continued to point to a gradual recovery in business activity over Q1.But he added: “We’re still expecting a quarter-on-quarter contraction in GDP, primarily as a result of public sector strikes.“Businesses expect the recovery to strengthen over the coming months; the Future Activity Index increased to a 12-month high of 71.1 in March and topped its 2012-to-present average, 68.6."The new orders balance also increased to 54.4 in March, from 53.2 in February, pointing to an imminent pick-up in activity in the manufacturing and private non-distribution services sectors in Q2.“Evidence of stable labour demand and slowing price rises means the MPC (the Bank of England's Monetary Policy Committee) needn’t stamp on signs of a nascent recovery in economic activity by raising the Bank Rate further at its upcoming meetings."

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