The UK’s services sector, which includes businesses such as pubs and restaurants, transport, property and financial services firms, has seen its fastest growth in nearly a year in April, according to new data from the S&P Global UK services PMI survey. The survey scored 55.0 in April, up from 53.1 in March and the highest level since May last year, surpassing economists’ expectations of 54.0.
A score above 50 indicates growth in the services sector, while anything below that suggests it is contracting. The sector has been on a steady growth trajectory for the past six months.
In April, an increase in sales was reported due to improved confidence among consumers and businesses, who are feeling more optimistic about the economic outlook. This optimism is backed by evidence that the cost-of-living crisis is easing, with the UK inflation rate dropping to 3.2 percent in March, according to official figures.
As a result, businesses saw an influx of new work last month, including from overseas, amid reports of strengthened sales to customers in the US and Asia.
Tim Moore, the economics director at S&P Global Market Intelligence, has stated: “Service providers benefited from improving business and consumer spending in April as more favourable demand conditions underpinned the greatest improvement in activity since May 2023.”
“The latest survey results are consistent with the UK economy growing at a quarterly rate of 0.4 percent and therefore pulling further out of last year’s shallow recession.”
However, businesses were hit by a sharp increase in costs in April following the national minimum wage hike at the start of the month, which was extended to 21 and 22 year olds for the first time.
This surge in wages led to a “sharp and accelerated rise in business expenses” throughout the month, according to Mr Moore.
The increased costs made firms hesitant to hire new staff, resulting in the slowest hiring pace in four months, as revealed by the survey.
Mr Moore also noted: “Business activity expectations for the year ahead were upbeat overall in April, therefore adding to signs that the recovery in service sector performance has further to run.”
“Election uncertainty and fading prospects for interest rate cuts were cited as headwinds on the horizon, but survey respondents still mostly reported positive sentiment towards their business investment plans and longer-term growth opportunities.”
The survey found that over half of the firms surveyed anticipate an increase in business activity in the coming year, while only a tenth expect a decline.
Businesses have suggested that factors such as a potential UK general election later this year, high interest rates, and unstable global economic conditions could hinder growth in the near future.
