Wednesday 5 April 2017

UK Service Sector Expands At Fastest Rate This Year

Service Sector

Britain’s services firms have bounced back from a new year lull to expand at the fastest rate since late 2016.

The latest health check of a sector that accounts for more than 75% of the economy’s output showed the pace of activity picking up to a three-month high in March.

Despite evidence that higher inflation was taking its toll of spending in hotels, restaurants, gyms and hairdressers, exporters of services were boosted by the fall in the value of the pound.

The monthly survey from Markit/CIPS showed business activity rising from a five-month low of 53.3 in February to 55 in March. Any reading above 50 indicates that the sector is expanding.

The survey reported that new product launches, strong client demand and the boost from a recovering global economy had all helped the service sector in March. Demand from the US was notably strong.

Chris Williamson, the chief economist at IHS Markit, said that the rebound in the service sector did not change the picture of an economy growing less rapidly in the first three months of 2017 than in the final quarter of 2016.

“The relative weakness of the PMI survey data compared to that seen at the turn of the year suggests the economy will have grown by 0.4% in the first quarter, markedly lower than the 0.7% expansion seen in the fourth quarter of last year,” Williamson said.

“Much of the disappointment in growth so far this year has been evident in consumer-oriented sectors, in part linked to spending and incomes being squeezed by higher prices.”

The Markit/CIPS survey found some companies reporting Brexit-related uncertainty holding back investment decisions.

Ruth Gregory, a UK economist at Capital Economics, said the service sector survey – taken together with similar reports for manufacturing and construction – pointed to the economy growing at 0.5% in the first quarter.

“March’s strong UK Markit/CIPS report on services provides some reassurance that the economy won’t slow too sharply this year, despite the intensifying headwinds,” Gregory said.

The Office for National Statistics will produce its first estimate of 2017 first quarter growth later this month.



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