UK services economy returns to growth in March, strongest optimism seen since Dec 2006: survey

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Summary

  • The UK services economy has returned to growth in March 2021. The March 2021 reading is notch above from March 2020.
  • The IHS Markit/CIPS UK Services PMI grew to 56.3.
  • The survey has signalled strongest optimism since December 2006.
  • The rate of job creation was the fastest since June 2019.

Witnessing a consecutive spike from the slowdown in January 2021 on the account of third national lockdown, the UK services economy has returned to growth, a survey released on Wednesday highlighted. The considerable growth in the services sector has been stimulated by the sharp rise in the orders ahead of the planned reopening according to the exit roadmap laid out by PM Boris Johnson.

The IHS Markit/CIPS UK Services Purchasing Managers’ Index (PMI) grew to 56.3 in March 2021, registering a sharp gain from February’s measure of 49.5. Notably, this has been the highest reading recorded by UK Services PMI by Markit in the last seven months. Moreover, the index has surpassed the psychological level of over 50.0 for the first time since October 2020.

The seasonally adjusted Markit/CIPS UK Services PMI reading indicates the rate of output expansion has been favouring the pace of recovery as the country prepares to reopen through a phased roadmap. Furthermore, the reading for March 2021 is notch above as compared to the reading recorded for March 2020.

The UK Services PMI has been largely falling after hitting a yearly peak in August 2020. The Covid-induced restrictions in place, the curbs imposed as a part of the three-tier system and adversities due to travel restrictions, slow demand, and the imposition of third national lockdown collectively affected the services sector in the stretch of the last six months.

More from the report 

  • Following a cyclical downturn until January 2021, the Markit/CIPS UK Services PMI has recognised a sharp upswing for straight two months -- February and March.
  • Led by the improvement in business conditions in March, uptick in employment, new orders, and increased activity, cumulatively supported the sharp rebound in the UK Services PMI.
  • Even with the modest uptick, the rate of job creation in March was the fastest in the last 22 months, while business expectations improved for the fifth straight month.
  • Interestingly, March saw the first overall expansion of the staffing numbers across the services sector with the renewed job creation since the beginning of the pandemic.
  • The business expectations have been further bolstered by the forthcoming plans of easements across various jurisdictions in the country.
  • According to the estimates by Markit/CIPS, about 66 per cent of the survey panel has predicted an increase in the services activity, whereas only 8 per cent of the panelists have indicated towards a possibility of a fall.
  • The survey conducted for March has signalled strongest optimism amid the businesses since December 2006, Markit said in a note.
  • Propelled by the stronger demand from client and forward bookings ahead of the planned easements in the UK, the Services PMI has gained a considerable notch in March.
  • Despite the continued drop in the volume of exports after the new arrangement between the UK and the EU, the new businesses expanded at the fastest rate since August 2020.
  • The international travel restrictions and certain post-Brexit issues surrounding the business environment were largely attributed for the subdued orders from overseas customers.
  • Successful vaccine rollout in the UK and looser restrictions on the back softening impact of the coronavirus pandemic have been linked to the optimism about growth prospects for the upcoming months in the near future.

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