The British services sector bounces back in March despite price rises at eight-year high

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The restaurant sector struggled but financial services proved resilient in March (Source: Getty)

The British services sector rebounded in March as the amount of new work jumped, despite prices rising at the fastest pace in eight years, according to a closely watched survey.

The purchasing managers’ index (PMI) for the services sector rose to 55.0 in March, IHS Markit reported, significantly outperforming consensus expectations of a 53.3 reading.

Sterling rose sharply in reaction to above $1.248 against the US dollar, after trading sideways during Asian market hours at around $1.244.

Read more: Rate hike caution needed as consumer slowdown looms says BoE official

The rebound was driven by a marked increase in business activity, after overall expansion in the sector (indicated by a reading above 50) fell to a five-month low in February.

The survey found some cause for concern within consumer-oriented services, with hotels and restaurants in particular seeing weaker performance, although retail sales are not included in the data.

Consumer demand is expected to fall under pressure from inflation by some economists, including at the Bank of England. The PMI survey found prices rose at the fastest pace since September 2008, as the global financial crisis started to bite.

Read more: British consumers look past economy gloom as confidence stays steady

Martin Beck, senior economic advisor to the EY Item Club, said: “The slight drop in input cost inflation offers hope that we are now some way down the road in terms of the weaker pound passing through.

“But the steady trickle through to consumer prices looks set to continue for several months yet, taking consumer price index inflation towards three per cent in the second half of the year.”

However, the survey also found some reports of cheaper sterling driving new business for exporters from abroad, while demand improved in particular from the US. Financial services showed “the greatest resilience”, IHS Markit said.

The performance of the services sector, which accounts for around four-fifths of the UK economy’s output, has been a vital driver of growth.

Read more: Economists: Indicators to show further expansion for UK economy

Services output has grown steadily for 16 consecutive quarters, with the sector contributing more than 85 per cent of the UK’s economic growth in the last quarter, according to the Office for National Statistics.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The rise brings some relief that GDP growth has not stalled in the first quarter, following manufacturing and construction surveys that signalled near-stagnation.”

However, the reading remains at its 20-year average, despite the rebound.

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