Service sector poised for record rebound: Bank of England ups growth forecast

Britain’s crucial services sector rebounded in April, with growth hitting a seven-and-a-half-year high thanks to a surge of “pent-up demand” as lockdown restrictions eased further.

The closely watched IHS Markit/Cips purchasing managers’ index (PMI) recorded a better-than-expected reading of 61 for April, up from 56.3 in March and the fastest pace of growth since October 2013. Any reading above 50 denotes growth.

The reopening of shops and outdoor dining on April 12 in England and retail and much of hospitality in Scotland on April 26 helped firms across the sector enjoy robust demand, while the road map for lifting lockdown further also boosted forward bookings and new projects.

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The report revealed that hiring reached its highest level for five and a half years in April, with some firms even citing staff shortages as a factor holding back growth.

The reopening of shops and outdoor dining on April 12 in England and retail and much of hospitality in Scotland on April 26 helped firms across the sector enjoy robust demand. Picture: Lisa Ferguson

Survey compiler IHS Markit said services growth in the second quarter could smash the report’s previous record set in April 1997 if the bounceback continues at the same pace.

Tim Moore, IHS Markit economics director, said: “April data illustrates that a surge of pent-up demand has started to flow through the UK economy following the loosening of pandemic restrictions, which lifted private sector growth to its highest since October 2013.

“The road map for reopening leisure, hospitality and other customer-facing activities resulted in a sharp increase in forward bookings and new project starts across the service sector.

“The successful vaccine rollout continued to underpin expectations of a strong recovery in the year ahead.”

The composite PMI reading, which also includes the smaller manufacturing sector, stood at 60.7 in April, up from 56.4 in March and also a seven-and-a-half-year high.

But the report flagged rising price pressures, with the steepest increase in costs for businesses since February 2017, which saw a knock-on effect on prices for consumers and firms.

The PMI report came as the Bank of England lifted its forecast for UK economic growth this year as a vaccine-fuelled recovery picks up pace.

The central bank predicts gross domestic product (GDP) – a measure of the size of the economy – will rebound by 7.25 per cent in 2021 up from its previous prediction of 5 per cent.

Its rosier view for the economy this year came as the bank’s monetary policy committee held interest base rates at 0.1 per cent.

Luke Bartholomew, senior economist at Aberdeen Standard Investments, said: “The Bank of England has sharply ungraded its growth forecasts for this year, mostly because the lockdown that hit the first quarter seems to have turned out much better economically speaking than many feared.

“The Bank now sees activity regaining its pre-Covid levels by the end of this year, but of course in normal times the economy would have enjoyed nearly two years of extra growth between early 2020 when Covid hit, and December 2021. So there will still be a big gap between where the economy is and where it should be at that point. It is this gap that will keep monetary policy very accommodative over the next few years.”

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