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UK service sector PMI returns to growth ‘quicker than expected’

IHS Market PMI for services at 56.3

The UK services sector made a return to growth last month as unemployment, business activities and new orders returned to growth from February.

Data that emerged on Wednesday shows that the UK’s so far successful roll-out of vaccines has led the economy to bounce back quicker than first expected.

The IHS Market purchasing managers index (PMI) for services came in at 56.3 for March, which indicates growth as it is above 50, the marker for stagnation.

In February the service sector contracted slightly, scoring 49.5 on the PMI.

The 56.3 score in March is the first time PMI has been above 50 since October 2020.

In a positive sign for employment figures, the number of staff hires increased overall for the first time since the pandemic started.

Tim Moore, Economics Director at IHS Markit, which compiles the survey, provided further context to the positive service sector news:

“UK service providers were back in expansion mode in March as confidence in the roadmap for easing lockdown restrictions provided a strong uplift to new orders. Total business activity increased at the fastest rate since August 2020 and this return to growth ended a four-month sequence of decline,” Moore said.

“Forward bookings for consumer services and rising optimism about recovery prospects resulted in extra staff hiring across the service economy for the first time since the start of the pandemic. Business optimism improved for the fifth month running in March and was the highest since December 2006.”

“Around two-thirds of the survey panel forecast an increase in output during the year ahead, which reflected signs of pent up demand and a boost to growth projections from the successful UK vaccine rollout. Of the small minority citing downbeat expectations in March, this was often linked to uncertainty about international travel restrictions.”

“There were further signs that strong cost pressures have spilled over from manufacturers to the service economy, especially for imported items. Higher prices paid for raw materials, alongside rising transport costs and utility bills, meant that operating expenses across the service sector increased at the strongest rate since June 2018.”

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