Boosted by new orders, the second quarter of the British service sector recorded the fastest growth in a year; however, it also passed the cost of raising the wage bills of consumers, so the Bank of England is compelled to keep raising the interest rate.
The final S&P Global/CIPS UK Services Purchasing Managers’ Index (PMI) increased from 52.9 in March to 55.9 in the final reading, above the 50-point mark for expansion and surpassing the 54.9 reading from the provisional reading.
The reading further stressed that it appeared to be heading for a recession in early 2023 due to a series of improved measures of the economy. On Thursday, the official numbers for mortgages and consumer loans also surprised to the upside.
The economics director at S&P Global Market Intelligence, Tim Moore, stated: “A strong rate of service sector growth meant that the UK economy started the second quarter of 2023 in (a) positive fashion.”
Nonetheless, businesses have been steadily increasing prices by small increments in the last 22 months, and are increasing at a faster rate than before the COVID-19 pandemic as firms aim to increase their profit margins.
On Thursday, a BoE survey of companies revealed that selling prices remained unchanged in April, even though they reduced their forecasts for future wage increases and inflation.
The BoE is attempting to bring down the double digit recession to 2% by anticipating an increase in the Bank Rate to 4.5% while closely monitoring wage settings and profit margins of businesses.
The chief UK economist at consultancy Oxford Economics, Andrew Goodwin, revealed: “The combination of a stronger demand outlook and sticky core inflation are likely to meet the (BoE’s) criteria for a rate hike, despite easing in energy prices, input costs, and supply chains.”
Over half of the PMI respondents noticed an increase in prices as a result of rapid wage growth and high energy costs.
According to the official data, wages in the private sector in the three months to February were 6.1% higher compared to last year. In the month of March, consumer price inflation recorded 10.1%.
The new services orders, according to S&P Global, have surged rapidly since March 2022, shortly after the Russia-Ukraine war began. The growth was attributed to stronger local demand, more export sales, and an increase in international visitors.
The PMI for Eurozone services was strong for the month of April.
For the fourth consecutive month, the rate of employment surged in the British PMI, improving staff availability to help fill vacancies in firms. The optimism of businesses for the year ahead was the strongest compared to the last 13 months, with 52% expecting growth in activities.
The services survey and Tuesday’s subdued manufacturing PMI were combined to create the composite PMI, which rose from 52.2 to 54.9 in March.
- Published By Team Timeswire