The UK’s service industry saw business activity grow at its fastest rate in 24 years last month as the reopening of the country’s economy after the pandemic continued apace.
The UK Composite Purchasing Managers’ Index (PMI) for services rose to 62.9 in May, up from 61 in April. Any score above 50 indicates growth.
It came in ahead of flash estimates of a reading of 61.8.
The positive news helped bolster the pound, with sterling currently buying $1.419 and €1.164.
IHS Markit also said that employment grew at the fastest rate in six years due to the newly loosened coronavirus restrictions.
It added that the impressive figures, which come after a surge in retail and hospitality spending, have laid the groundwork for an “eye-popping” rise in GDP in the second quarter.
However, the data also showed that the combination of strong demand and rising operating expenses resulted in the steepest increase in prices charged by service providers since the survey began in 1996.
In turn, this sent input cost inflation to its highest since July 2008, adding weight to fears that the rapid rebound from the pandemic could see a similarly dramatic jump in the rate of inflation.
In April, the rate of CPI more than doubled to 1.5 per cent, driven by a rise in electricity and gas bills.
Tim Moore, Economics Director at IHS Markit, said: “UK service providers reported the strongest rise in activity for nearly a quarter-century during May as the roll back of pandemic restrictions unleashed pent up business and consumer spending.
“The latest survey results set the scene for an eye-popping rate of UK GDP growth in the second quarter of 2021, led by the reopening of customer-facing parts of the economy after winter lockdowns.”
The data also showed the strongest rate in employment growth in six years as the easing of restrictions sparked hiring plans.
However, surveyed firms said they had seen pressure on business capacity and staff shortages due to the rapid uptick in demand.
Duncan Brock, group director at the Chartered Institute of Procurement & Supply (CIPS), said: “This shortfall in talent meant the best candidates were increasingly in demand and demanding higher wages, adding to the highest inflationary rise in business costs since July 2008.
“We will see more pressure for salary rises as basic living becomes more expensive for everyone, as the hike in prices charged by service companies was the highest since 1996.”
Earlier this week the Organisation for Economic Cooperation and Development predicted that the UK was set for the fastest growth of any major economy this year.
But due to the vast scale of last year’s slump – the biggest in over 300 years – the UK will take longer than the US Germany or Japan for output to return to pre-crisis levels.
And the Bank of England has said initial rapid growth as the economy reopens will give few clues to the medium-term prospects for both growth and inflation, which it expects will revert to subdued pre-pandemic trends.