UK Private Sector Recovers On Services Activity

The UK private sector returned to the expansion territory in March with the service sector performance outpacing the manufacturing output growth, flash survey data from IHS Markit and the Chartered Institute of Procurement & Supply showed on Wednesday.

The composite output index rose to 56.6 from 49.6 in the previous month. Economists had forecast the index to rise moderately to 51.1.

The speed of recovery was the fastest since August 2020. For the first time since the start of the pandemic, service sector activity outpaced manufacturing production growth.

The services Purchasing Managers’ Index surged to 56.8 from 49.5 in February. The expected level was 51.0.

The manufacturing PMI improved to 57.9 from 55.1 in the previous month. The score was forecast to climb to 55.0.

The encouraging readings on future expectations, job creation and new order inflows all point to robust economic growth in the second quarter, especially if virus restrictions are lifted further, Chris Williamson, chief business economist at IHS Markit, said.

The bounce back in activity is likely to drive 4-5 percent growth in the second quarter, James Smith, an ING economist noted.

The survey showed that the government roadmap for fewer stringency measures in the coming months contributed to the strongest rise in total new work since August 2020.

A strong degree of pent-up domestic demand led to a renewed increase in unfinished work in March. Efforts to rebuild business capacity and respond to rising customer demand contributed to an increase in private sector employment in March.

Business expectations for the year ahead picked up for the third straight month and were the strongest since this index began in July 2012.

Positive trends for output, new work and staff hiring were accompanied by another round of steep input cost inflation in March. The average cost burdens grew at the sharpest rate since February 2017. Output charge inflation also rose to its highest level for over three years.

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