UK services sector grows at fastest pace for nearly a year after spending boost

Activity in the UK’s services sector increased at the fastest rate in nearly a year in April, strengthening hopes that the economy is pulling itself out of a shallow recession, according to new data.

The S&P Global UK services PMI survey scored 55.0 in April, up from 53.1 in March and the highest level since May last year.

It came in ahead of the reading of 54.0 that economists were expecting.

Any score above 50 indicates that the services sector is growing, while anything below that implies it is shrinking.

The services sector, which spans businesses including pubs and restaurants, transport, property and financial services firms, has been growing steadily for the past six months.

April saw more firms benefit from a boost to sales thanks to improved confidence among consumers and businesses who were reported to be feeling more optimistic about the outlook for the economy.

This includes evidence that the cost-of-living crisis is continuing to ease, with the rate of UK inflation dropping to 3.2% in March, according to official figures.

Businesses therefore had more new work coming in last month, including from other countries amid reports that sales had strengthened to customers in the US and Asia.

Tim Moore, the economics director at S&P Global Market Intelligence, said: “Service providers benefited from improving business and consumer spending in April as more favourable demand conditions underpinned the greatest improvement in activity since May 2023.

ECONOMY Inflation
(PA Graphics)

“The latest survey results are consistent with the UK economy growing at a quarterly rate of 0.4% and therefore pulling further out of last year’s shallow recession.”

However, businesses faced a sharp increase in costs in April following the national minimum wage increasing at the start of the month and extending to 21 and 22-year-olds for the first time.

The higher cost of wages helped drive a “sharp and accelerated rise in business expenses” throughout the month, Mr Moore said.

It also meant firms were more reluctant to take on new staff, leading hiring to increase at the slowest pace in four months, the survey found.

Mr Moore added: “Business activity expectations for the year ahead were upbeat overall in April, therefore adding to signs that the recovery in service sector performance has further to run.

“Election uncertainty and fading prospects for interest rate cuts were cited as headwinds on the horizon, but survey respondents still mostly reported positive sentiment towards their business investment plans and longer-term growth opportunities.”

More than half of the firms surveyed said they were expecting business activity to rise in the year ahead, while just a 10th were expecting a decline.

An expected UK general election later this year, still-elevated interest rates, and fragile global economic conditions were among the factors businesses suggested could dampen growth in the near future.