By Suban Abdulla
LONDON (Reuters) – Britain’s services sector kicked off the second quarter with its fastest growth in a year, boosted by new orders, but it passed the cost of rising wage bills on to consumers, adding pressure on the Bank of England to keep raising interest rates.
The final S&P Global/CIPS UK Services Purchasing Managers’ Index (PMI) rose to 55.9 from 52.9 in March, above the 50 threshold for growth and higher than a provisional reading of 54.9.
Thursday’s reading added to a series of improved measures of the economy, which had appeared to be heading for a recession in early 2023.
“A strong rate of service sector growth meant that the UK economy started the second quarter of 2023 in positive fashion,” Tim Moore, economics director at S&P Global Market Intelligence said.
However, prices charged by businesses picked up pace after rising by the smallest amount in 22 months in March, and are still increasing noticeably faster than before the COVID-19 pandemic as firms said they wanted to rebuild profit margins.
Nearly half of survey respondents reported a rise in costs, mostly due to strong wage growth and high energy bills.
“Both input costs and average prices charged increased at faster rates in April, which service providers overwhelmingly attributed to greater staff wages,” Moore said.
The BoE, which is expected to lift its Bank Rate to 4.5% next week, is closely monitoring wage-setting and businesses’ profit margins as it attempts to return double-digit inflation to its 2% target.
Britain’s most recent official data showed that average private sector wages in the three months to the end of February were 6.1% higher than a year earlier, while consumer price inflation in March was 10.1%.
S&P Global said new services orders grew at the strongest pace since March 2022, just after Russia’s invasion of Ukraine started to hurt European economies, helped by improving domestic demand and overseas sales as well as more foreign tourists.
Employment rose for the fourth month in a row and improved staff availability helped firms fill vacancies.
Business optimism for the year ahead was the strongest in 13 months, with 52% of firms expecting activity to grow.
The composite PMI, which combines the services survey with Tuesday’s subdued manufacturing PMI, showed output increased to 54.9, up from 52.2 in March and above the 51.3 average in the first quarter.
(Reporting by Suban Abdulla; editing by John Stonestreet)
