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Summary
- UK’s service sector made its strongest recovery last month since May 1997.
- The services sector grew 62.9 in May compared to 61.0 in April, as per IHS Market’s monthly Purchasing Managers Index.
- Unexpected client demand contributed majorly to the improvement, according to respondents.
UK’s service sector made its strongest recovery last month since May 1997. The recovery was driven majorly by the retail and hospitality sectors that have hugely benefitted from the lifting of Covid-19 restrictions.
New orders in the month of May rose at its fastest since October 2013. The uptick in consumer spending and resurgent business activities were reported by the companies. Pickup also saw increased hiring by companies resulting in the rate of employment growth reaching its strongest in more than six years.
The services sector grew 62.9 in May compared to 61.0 in April, as per IHS Market’s monthly Purchasing Manager’s Index. The pickup exceeded market expectations of 61.8, in a sign of recovery in the UK economy from the health crisis. The numbers below 50.0 marks contraction and one above that indicates expansion.
The government gradually eased Covid-induced restrictions in mid-May, which allowed restaurants and pubs to resume indoor service. In April, non-essential shops were allowed to resume operations.
Most of the survey respondents said that unexpected client demand contributed majorly to the improvement. However, there were incidents reported on the difficulty in finding staff, especially in the custom service sector.
Price rise
However, the uptick has also led to a push up in costs. Since July 2008, the rise in input price was at its highest, and companies increased their prices at the quickest pace since 1996.
Also read: UK Government Borrowing Hits Second-Highest April On Record
The push in demand has also resulted in firms in the service sector struggling to find staff which also led to a number of them increasing pay to attract more employees.
Payroll numbers saw its quickest rise since March 2015. Respondents said that the reason for it was both, employees returning from furlough and fresh hirings.
An increase in forward bookings, staff crunch, and stressed capacities resulted in backlogs building up, and workers seem to have benefitted from companies paying higher salaries due to supply crunch.
The Organisation for Economic Cooperation and Development (OECD) in its forecast earlier in the week, said the UK is expected to see the fastest growth this year compared to any other major economy.
IHS Markit’s economic director Tim Moore said that survey results would pave the way for good GDP numbers in the second quarter of the year, primarily driven by the reopening of public-facing sectors after a series of lockdowns.
Inflationary pressures had little impact on the coming year’s business expectations, and confidence fell only a little since April, according to the survey. Remaining to March’s 14-year-high, the index reflected strong optimism about the short to medium term growth in business activities.
Moore also said that a successful vaccination drive has resulted in an increased appetite to spend and encouraging business optimism throughout the sector. But inflationary trends increased in May because suppliers passed on staff costs, prices of raw materials, and higher transport bills. Moore said that the imbalance in supply and demand spread beyond the manufacturing sector, contributing to the highest price rise by service providers since 1996.
