The services sector returned to growth last month for the first time since October as economic activity picked up ahead of the easing of lockdown, according to a report.
IHS Markit’s monthly purchasing managers’ index for the services sector rose from 49.5 in February to 56.3 last month. Although the index was above the 50 mark that separates growth from contraction, it was below an earlier “flash” estimate of 56.8.
Tim Moore, economics director at IHS Markit, said: “UK service providers were back in expansion mode in March as confidence in the road map for easing lockdown restrictions provided a strong uplift to new orders. Total business activity increased at the fastest rate since August 2020 and this return to growth ended a four-month sequence of decline.”
The composite index, which combines the services and manufacturing sectors, rose from 49.6 to 56.2 last month. Business confidence, new orders and employment all rebounded as companies started to prepare for higher levels of demand.
“Forward bookings for consumer services and rising optimism about recovery prospects resulted in extra staff-hiring across the service economy for the first time since the start of the pandemic,” IHS Markit said. “Business optimism improved for the fifth month running in March and was the highest since December 2006.”
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Economists expect the economy to rebound sharply this year, with analysts at the International Monetary Fund forecasting growth of 5.3 per cent this year and 5.1 per cent in 2022. This would mark the fastest growth since 1988 and comes a year after the economy shrank by 9.8 per cent, representing the deepest recession since 1709.
Howard Archer, of the EY Item Club, the economic forecaster, said: “The survey fuels belief that, while the economy highly likely contracted in the first quarter of 2021, the decline in GDP was probably significantly less than had originally been expected and that the economy has come off its January lows.”
Britain was the worst-hit economy in the G7 last year, but the rapid rollout of coronavirus vaccines means that it will rebound faster than most of its peers.
The latest PMI figures suggest that the British economy is outpacing the eurozone bloc, which has been slower to vaccinate its population and is in the grip of a third wave of Covid-19. The services PMI for the eurozone measured 49.6, up from 45.7 the previous month. The composite reading rose from 48.8 to 52.5.
Jack Allen-Reynolds, at Capital Economics, the consultancy, said: “Both Germany’s and France’s indices were revised up from the flash estimates, while the first estimates for Italy and Spain showed improvements compared with February. At the aggregate level, both manufacturing and services rose, but we suspect that the services index will fall in April as Covid restrictions have been tightened.”
