Services sector reaches 13-month high but UK growth ‘lopsided’ as consumers raid the storecupboard
Growth of Britain’s services sector has reached a year-high in April, a closely watched survey has revealed.
Figures released this morning in S&P Global/CIPS flash UK purchasing managers’ index, show output rose to 53.9 in April from 52.2 in March.
The survey showed that private sector growth had increased for the third consecutive month, beating the expectation of 52.5 which had been predicted by experts.
S&P also warned that while the growth in services was welcome, it was also “lopsided”, with inflation and the cost of living crisis continuing to hit demand for goods in the wider economy.
This morning, Growth for Knowledge (GFK) released its figures showing that the UK economy is in the “early stages of recovery” with its consumer confidence index – which has been running since the 1970s – up six points in April from minus 36, although the reading is still a historic low.
The Office for National Statistics also published its retail figures on Friday, showing that the sixth wettest March on record had dampened consumer spending on Britain’s high streets.
S&P’s figures comes after inflation remained in double digits, beating expectations it would drop more significantly, and nailing on the likelihood of another interest rate rise.
The figures show there was a rise in new order intakes but there was a fall in manufacturing production. Goods produces said customer ‘destocking’ against the backdrop of soaring inflation and efforts to cut costs, added to pushing down demand.
It also pointed to April being the slowest increase in input costs for the private sector in over two years, due to falling fuel and energy prices.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said the figures “signalled an acceleration of economic growth to the fastest for a year in April, building on a modest return to growth in the first quarter of the year.”
“Growth is lopsided, however, with surging demand for services contrasting with an ongoing downturn in demand for goods.”
“Even within the service sector, growth is dependent on consumers switching spending from goods to services and a revival of financial services activity, both of which are areas susceptible to the impact of higher interest rates and the ongoing cost of living squeeze. Business services and manufacturing are clearly struggling.”
It wasn’t all doom and gloom however, as he added that the “key takeaway is that the economy as a whole is not only showing encouraging resilience but has gained growth momentum heading into the second quarter, the latest PMI reading broadly indicative of GDP rising at a robust quarterly rate of 0.4 per cent.”
“This combination of faster growth and elevated price pressures put a twelfth rate hike by the Bank of England an increasingly done deal when it next meets on 11th May, and will add to speculation that further hikes may be needed.”
Dr John Glen, CIPS Chief Economist added that “the fastest rebound in private sector output in a year showed businesses were enjoying the pockets of recovery emerging in the UK economy and activity levels leapt up as a result of new orders and improved supply chain performance.
“However, the difference between the manufacturing and service sectors was stark.”
He said “services saw the fastest new order growth for 13 months” while the manufacturing sector “received another body blow and became more entrenched in contraction with a fall in new orders and another round of job shedding.”
“With another interest rate rise predicted for next month to cool inflation this may provide some respite in the months to come. However, the higher salary payments demanded by skilled workers will remain part of the business landscape and rising borrowing costs may not take the heat out of the economy just yet.”