UK Services PMI rose less than expected in March

According to the report from IHS Markit/CIPS, UK service providers reported a strong rebound in business conditions during March, with activity, new orders and employment all picking up since the previous month. Renewed job creation in March represented the first overall expansion of staffing numbers across the service sector since the start of the coronavirus disease 2019 (COVID-19) pandemic. The forthcoming easing of government stringency measures also contributed to another improvement in business expectations for the year ahead. Around 66% of the survey panel forecast an increase in activity over this period, while only 8% predict a fall. This signalled the strongest optimism since December 2006.

At 56.3 in March, up sharply from 49.5 in February, the headline seasonally adjusted UK Services PMI Business Activity Index posted above the 50.0 no-change level for the first time since October 2020. Moreover, the latest reading signalled the fastest rate of output expansion for seven months. However, economists had expected an increase to 56.8.

Rising levels of activity were linked to a recovery in business and consumer spending, while some parts of the service economy commented on a boost from higher residential property transactions during March. Survey respondents often commented on pent up demand and work on projects that had been delayed at an earlier stage of the pandemic. Stronger client demand and forward bookings ahead of easing lockdown measures contributed to an increase in total new work for the first time in six months. The rate of new business expansion was the fastest since last August, despite a sustained reduction in export sales. 

March data pointed to a renewed increase in business activity across the UK private sector as a whole, reflecting robust rises in manufacturing production and service sector output. The seasonally adjusted UK Composite Output Index registered 56.4, up from 49.6 in February and above the neutral 50.0 threshold for the first time in 2021 to date. Moreover, the latest reading signalled the strongest rate of output growth for six months.