Services firms boosted by pent-up demand as lockdown lifts

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10:32am, Thu 06 May 2021
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Britain’s services sector rebounded in April, with growth hitting a seven-and-a-half-year high thanks to a surge of “pent-up demand” as lockdown restrictions eased further, according to figures.

The closely watched IHS Markit/CIPS Purchasing Managers’ Index (PMI) recorded a better-than-expected reading of 61 for April, up from 56.3 in March and the fastest pace of growth since October 2013.

A reading above 50 signals growth.

The reopening of shops and outdoor dining on April 12 helped firms across the sector enjoy soaring demand, while the road map for lifting lockdown further also boosted forward bookings and new projects.

April data illustrates that a surge of pent-up demand has started to flow through the UK economy following the loosening of pandemic restrictions

May 17 is the date when indoor dining is set to be allowed, with a raft of hospitality also reopening, such as cinemas and theatres.

The report revealed that hiring reached its highest level for five and a half years in April, with some firms even citing staff shortages as a factor holding back growth.

Survey compiler IHS Markit said services growth in the second quarter could smash the report’s previous record set in April 1997 if the bounceback continues at the same pace.

Tim Moore, IHS Markit economics director, said: “April data illustrates that a surge of pent-up demand has started to flow through the UK economy following the loosening of pandemic restrictions, which lifted private sector growth to its highest since October 2013.

“The road map for reopening leisure, hospitality and other customer-facing activities resulted in a sharp increase in forward bookings and new project starts across the service sector.

“The successful vaccine rollout continued to underpin expectations of a strong recovery in the year ahead.”

The composite PMI reading, which also includes the smaller manufacturing sector, stood at 60.7 in April, up from 56.4 in March and also a seven-and-a-half-year high.

But the report flagged rising price pressures, with the steepest increase in costs for businesses since February 2017, which saw a knock-on effect on prices for consumers and firms.

Duncan Brock, group director at the Chartered Institute of Procurement & Supply (CIPS), said: “While salaries, transport charges and raw material shortages were driving up operating costs at considerable levels, companies felt comfortable enough to charge their customers more, as price rises equalled late 2017 rates.”

Samuel Tombs, at Pantheon Macroeconomics, said while the recovery is gathering steam, “chances of ingrained high inflation remain low”.

He said inflation will be curtailed as rising unemployment will keep a “tight lid” on wages, particularly after the furlough scheme ends.

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