According to the S&P Global/CIPS UK Services PMI business activity index, published this morning (4 May), April saw the UK’s services sector rise at its fastest level in 12 months. The services PMI was at 55.9 for April, up from 52.9 in March.
Any figure above 50 indicates growth and the services bump will act as something of a counterweight to the poor performance of UK manufacturing, which we reported in the Daily Update yesterday.
The headline index has now registered above 50 for three months running and the latest reading pointed to the fastest rate of growth since April 2022.
Consumers spending
Stronger consumer spending boosted activity, especially in areas such as travel, tourism, and leisure, as well as increased demand for business services, despite inflationary pressure.
Exports are also up for the fifth month in a row, with a general recovery in demand from EU and US clients noted.
The reading added to a series of improved measures of the economy, which had appeared to be heading for a recession in early 2023, reports Reuters.
“A strong rate of service sector growth meant that the UK economy started the second quarter of 2023 in positive fashion,” said Tim Moore, economics director at S&P Global Market Intelligence.
However, prices charged by businesses are increasing noticeably faster than before the pandemic as firms said they wanted to rebuild profit margins.
Elevated energy prices and pay pressure contributed to another steep rise in average cost burdens and prices, reports Trading Economics.
Rate rise?
The Bank of England, which is expected to lift its Bank Rate to 4.5% next week, is closely monitoring wage-setting and business profit margins as it tackles double-digit inflation.
Martin Beck, chief economic advisor to the EY ITEM Club, said the survey “will have sent a hawkish signal to the MPC ahead of next week’s meeting”, reports Proactive Investors.
A rise in employment growth and subsequent tight labour market conditions are compelling employers to increase pay, contributing to an acceleration in output price inflation, he added.
Lessons learned
FT columnist Alan Beattie comments that it has taken the UK a long time to wake up to the value of services, and in particular higher education. In the post-Brexit era he suggests that totemic industries, such as fishing, have commanded more attention, despite being comparative minnows.
A report from the Department for Business and Trade (DBT) and the Department for Education (DfE) shows that UK higher education exported £24.5bn in 2019, £1.5 billion larger than DfE’s initial observation, reports FE News.
Minister for investment, Dominic Johnson, said: “The UK’s education sector continues to be one of our greatest soft power assets and, as this report suggests, a leading export that supports our universities and helps attract the world’s best minds to the UK.”
City changes
Meanwhile, the UK’s financial regulator, the FCA, is looking at a deeper and faster overhaul of stock market listing rules after a string of high-profile companies shunned the City in favour of New York, reports the FT.
New rules could be in place by early next year for companies seeking new listings in London and phased in for companies already on the exchange.
According to the FCA, while the UK remains Europe’s biggest financial hub, listings in the UK have reduced by 40% since 2008, with the listing regime seen by some issuers and advisers as too complicated and onerous.