Services sector activity sees 'modest' rebound following March snow storms

Activity in Britain's services sector experienced a "modest" rebound last month following snow storm disruption in March, having recorded the second weakest rate of growth since late 2016.

The closely watched Markit/CIPS services purchasing managers' index (PMI) showed a reading of 52.8 in April, up from 51.7 in March but falling short of economists' expectations for 53.5.

A reading above 50 indicates growth.

It marks the softest rate of growth in just over a year and a half aside from the low recorded in March when businesses suffered a weather-related slowdown.

Companies blamed subdued spending among consumers for holding back activity growth last month, though corporate clients also became tight-fisted amid concerns over the UK's economic outlook.

There was also a marginal fall in work backlogs among service sector firms, ending a three-month streak of expansion.

Chris Williamson, chief business economist at IHS Markit which compiles the survey, said: "The services survey adds to signs that the rate of economic growth remained disappointingly subdued at the start of the second quarter.

"The three PMI surveys collectively showed only a muted rebound in business activity after being disrupted by heavy snowfall in March, failing to regain February's pace of growth to suggest that the underlying performance of the economy has continued to deteriorate."

Hiring across the services sector was its weakest since March 2017, as higher wages and tight labour market conditions held back recruitment.

Stronger wages also pushed up business costs following the increase in the national living wage and recent hike in pension contributions.

But survey responses pointed to the overall rate of input price inflation easing from March, with the report noting that it "remained softer than at any time in 2017".

Business confidence also improved, with the balance of companies expecting a rise in activity in the coming year hitting its highest level since January thanks in part to upcoming product launches, marketing plans and "discounting strategies".

The pound was mixed in the wake of the data, up 0.08% against the US dollar at 1.358 but down 0.08% versus the euro at 1.134.

James Smith, a developed markets economist at ING, said the fact that the services PMI failed to fully rebound means a May interest rate hike "is now completely off the table."

"As the Bank of England tries to gauge how much of the recent dip in economic activity was temporary, the message from the latest services PMI is that the snow wasn't entirely to blame"

He added: "The accompanying press release makes it clear that much of this has to do with weak consumer demand - and we don't expect these difficulties to fade rapidly."

However, Samuel Tombs, chief UK economist for Pantheon Macroeconomics, said the services PMI figure was never going to be pivotal for the Bank's interest rate decision this month, given the surprise March inflation reading of 2.5% and disappoint first quarter GDP figure of 0.1%.

"But the PMIs' weakness in April greatly reduces the chances of a 'hawkish hold' decision, i.e. a no change vote accompanied by clear guidance that rates will rise again very soon.

"Following today's data, nobody can have strong conviction that the economy's first quarter slowdown will be just a blip."

Read Full Story Click here to comment