Britain's service sector posts "stellar" performance in April after a slow start to the year

by

The UK economy is in growth mode (Source: Getty)

Activity in the UK's service sector picked up in April after a slow start to the year, rounding off a "hat-trick of good news".

IHS Markit's purchasing managers' index (PMI) for the services sector increased to 55.8 in April as the sector posted the sharpest rise in business activity since December 2016. The closely watched figure was up from 55 in March - any figure above 50 denotes growth.

The pound lifted to as much as $1.29 against the US dollar after the news.

Job creation also grew to a four-month high, driven by renewed pressures on operating capacity.

UK service providers also noted a strong pace of input cost inflation in April, which contributed to the steepest rise in prices charged by service sector firms since July 2008.

Around four times as many service providers, or 47 per cent, still anticipate a rise in business activity compared with those that expect a fall, 12 per cent. However, the degree of optimism has fallen from January's peak to its weakest in five months.

Chris Williamson, chief business economist at IHS Markit, said the PMI data rounds off a hat-trick of good news for the UK economy after surprises in both the manufacturing and construction PMIs.

Read more: New orders drive growth surprise for UK construction despite gloomy outlook

"The three surveys collectively point to GDP growing at a rate of 0.6 per cent at the start of the second quarter," Williamson said.

While we expect consumer spending to slacken in coming months, with the April survey highlighting continued weakness in sectors such as hotels, restaurants and other household-facing businesses, there’s good reason to believe that at least 0.4% per cent GDP growth can be achieved in the second quarter as a whole.

Williamson said the data suggests consumer price inflation has further to rise from its current level of 2.3 per cent in the coming months.

“The strengthening of growth and the upturn in prices will bolster calls for higher interest rates. But weak growth in the consumer sector remains a concern, and is something which could intensify in coming months as consumer prices rise further.”

Read more: Eurozone unemployment at lowest since 2009