Strong survey of UK service activity points to pick-up in growth

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And that’s the hat-trick.

Activity in the UK’s key service sector was better than expected in April, according to a closely-watched survey, rounding off a strong set of surveys that suggested the UK economy started the second quarter well after official figures showed a slowdown in growth in the first quarter.

The purchasing managers’ index for the service sector – which accounts for nearly 80 per cent of Britain’s economic output – climbed to 55.8 from March’s reading of 55. Economists surveyed by Bloomberg had expected the figure to slip to 54.5.

Businesses reported improvements in new business growth and job creation, and said they were still confident about prospects for growth over the next 12 months, albeit less so than in March.

Similar surveys of the manufacturing and construction sectors, released earlier this week, also showed unexpectedly strong results, particularly in manufacturing where the weak pound has helped to boost exports.

The PMI surveys question firms on indicators such as orders, hiring and inventories to gain a picture of the overall health of a sector, and are seen as useful early indicators of economic growth. This week’s figures, if sustained over the quarter, point to a GDP growth rate of 0.6 per cent.

That would be double the rate seen in the first quarter of the year, according to early estimates released by the Office for National Statistics last week.

Chris Williamson, IHS Markit chief business economist, said:

While we expect consumer spending to slacken in coming months, with the April survey highlighting continued weakness in sectors such as hotels, restaurants and other household-facing businesses, there’s good reason to believe that at least 0.4 per cent GDP growth can be achieved in the second quarter as a whole.

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