Services sector bounces back despite Brexit-led cost rises

Services are holding up while other sectors are showing signs of strain
Services are holding up while other sectors are showing signs of strain

Services output has rebounded to its strongest rate this year, jumping to a three-month high in March despite cost pressures continuing to bite.

The closely watched Markit/CIPS services purchasing managers’ index (PMI) rose to 55 last month, up from 53.3 in February and above economists’ expectations of 53.4.

A reading above 50 indicates growth.

The sector, which accounts for around 78% of the UK economy, saw business activity bounce back from a five-month low in February to its strongest level for 2017, as client demand strengthened.

However, mounting costs triggered by the Brexit-hit pound loomed large over the sector, with prices charged by services firms rising at levels not seen since the financial crisis.

Sterling pushed into positive territory on the currency markets shortly after the announcement, with the pound up 0.2% against the US dollar at 1.247 and 0.2% ahead versus the euro at 1.168.

Separate PMI figures earlier this week showed manufacturing output eked out its weakest growth in eight months for March, while construction activity was dragged back over the period by a slowdown in housebuilding.

Chris Williamson, IHS Markit chief business economist, said despite the strong performance, the services sector failed to “change the picture of an economy that slowed in the first quarter”.

He said: “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.

“The March uptick in the PMI surveys merely brings the data in line with a neutral policy stance at the Bank of England.