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Just when you think you have a handle on where UK economic data are heading, it seems the country’s financial services industry is doing some serious heavy lifting to counteract stress among consumers.
The country’s services sector is in stronger health than thought, according to a closely-watched survey, which reported the strongest rise in activity in the sector of the year so far – a contrast to drab readings for construction and manufacturing. Sterling gained 0.3 per cent on the day to $1.2476 in response.
IHS Markit’s purchasing managers’ index for the sector, which covers order, hiring and the like to form a rounded view of businesses’ health, rose to 55 in March, from 53.3 in February and well above the 53.4 expected by economists polled by Bloomberg.
The survey’s compilers note a distinct dose of optimism:
Survey respondents also remained optimistic about the year-ahead business outlook, with almost half of the survey panel forecasting growth while only one-in-nine expect a fall in activity. However, intense cost pressures continued in March, which led to the fastest rise in prices charged by service sector firms since September 2008.
The retail end of the services industry is showing the most strain, it seems:
Within the service sector, the worst performance so far this year has been seen in consumer-oriented sectors, notably hotels and restaurants, as well as personal consumer services (which include businesses such as sports centres, gyms and hairdressers). The greatest resilience has been seen in financial services.
But inflation is biting.
Average prices charged by service sector companies increased at the fastest rate for eight-and-a-half years in March. This was overwhelmingly linked to higher input costs during recent months. Survey respondents also noted that resilient demand had provided scope to pass on some of their increased costs to clients.
Chris Williamson at IHS Market says:
The survey data indicate that UK business activity growth regained some momentum after having slipped to a five-month low in February, but the upturn fails to change the picture of an economy that slowed in the first quarter.
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.
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.