Service sector rebound gives pre-election boost

Chris Williamson, chief economist at Markit. Picture: Contributed

The closely-watched Markit/Cips purchasing managers’ index (PMI) for the services sector – released yesterday – hit 58.9 last month, up from February’s reading of 56.7. Any figure above 50 denotes growth.

Together with results from other sectors, it indicates that gross domestic product (GDP) grew by 0.7 per cent in the first three months of 2015, up from 0.6 per cent in the final quarter of 2014.

It is the latest piece of upbeat economic news ahead of May’s general election and is likely to be seized upon by the Conservatives as they highlight the resilience of the UK economy despite sweeping austerity cuts.

Manufacturing figures for March published last week had also shown a pick-up, although construction growth eased.

It comes as the latest growth indicator from the CBI also pencils in an uptick in growth to 0.7 per cent for the first quarter/

Chris Williamson, chief economist at Markit, said: “The UK economy moved up a gear in March, recording the strongest pace of growth since last August.

“The three PMI surveys collectively indicate that the economy grew by 0.7 per cent in the first quarter, reviving from the slowdown seen late last year.

“Faster growth of new business and improved expectations of prospects for the year ahead also bode well for the upturn to retain strong momentum as we move through the spring.” Services represent more than three-quarters of UK output, although the survey does not factor in the vast retailing sector.

Businesses attributed growth to the wider economic recovery, improving confidence, winning new customers and product development.

The report showed a marked increase in the volume of new business, while expectations were at their strongest since May last year. The sector continued to add jobs albeit the pace was the slowest for three months.

Samuel Tombs, of Capital Economics, said it “provides further reassurance that the economic recovery is still on a fast track despite the uncertainty created by the upcoming general election”.

The figures come just ahead of the last meeting of the Bank of England’s interest rate-setting monetary policy committee (MPC) prior to the election.

Rates have been held at 0.5 per cent since the height of the downturn in 2009 but despite the recovery, policy makers are not thought to be close to a hike, with inflation at zero and economic uncertainties weighing on the UK’s outlook.

Howard Archer, chief UK and European economist at IHS Global Insight, said: “The improved, upbeat collection of March purchasing managers’ surveys reinforce our belief that the next policy move by the Bank of England will be to hike interest rates.

“However, the Bank will clearly sit tight at its April meeting on Thursday, and the odds currently seem to favour the Bank holding off from raising interest rates until the early months of 2016.”