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Services companies signal rapid recruitment amid growth

GROWTH in the UK services sector workforce accelerated slightly in May to the joint-fastest monthly pace in 17 years, a survey has shown.

The survey, published yesterday by the Chartered Institute of Purchasing and Supply (CIPS), showed growth in activity in the services sector remained robust in May, although the rate of expansion is adrift of the pace recorded during the second half of last year.

CIPS's business activity index for services fell marginally from 58.7 in April to 58.6 in May on a seasonally adjusted basis. However, it remained well above the level of 50 deemed to separate expansion from contraction and was ahead of the figure of 58.2 forecast by economists. CIPS's employment index for services rose from 56 in April to 56.2 in May on a seasonally adjusted basis. This reading is the highest since last October, and the joint-strongest figure since May 1997.

Around one-fifth of those surveyed by CIPS indicated an increase in staffing levels, compared with only five per cent recording a decline.

Extra staff were taken on largely to help deal with increased sales and trade activity, CIPS said. Headcount was also increased to help support business expansion plans over the coming months and into 2015, the survey noted.

CIPS's services sector survey does not include retail.

Chris Williamson, chief economist at survey compiler Markit, believed the strength of the surveys of the services, manufacturing and construction sectors published this week by CIPS signalled the UK economy could in the current quarter finally regain its level of output ahead of the Great Recession.

Figures published last month by the Office for National Statistics showed that UK gross domestic product in the first quarter of this year was 0.6% adrift of its level in the opening three months of 2008, highlighting the extremely protracted nature of the recovery.

Mr Williamson said: "The UK economy continued to boom in May, in what is the best spell of growth since 2007. The buoyant services PMI [purchasing managers' index] follows similar upbeat manufacturing and construction reports, which collectively suggest that the economy is on course to grow by 0.8 per cent again in the second quarter. That would push the economy above its pre-crisis peak."

Contemplating implications for UK base rates, which have been at a record low of 0.5 per cent since March 2009, he added: "With every strong PMI reading, the more lively the discussion will become among the Bank of England's Monetary Policy Committee that a pre-emptive early hike in interest rates is warranted. However, with inflationary pressures remaining subdued, the case for higher rates is by no means clear cut. Higher wage growth is starting to follow the labour market upturn, but until substantial increases in pay rates materialise in the official data, the chances are that the Bank of England will keep its foot firmly on the accelerator pedal to help keep the economy booming."

Mr Williamson viewed the rate of job creation signalled by CIPS's surveys as "really great news".

And David Noble, chief executive officer at CIPS, said: "Firms in the services sector are creating jobs at a level seen only once since 1997 and offering bigger salaries to boot - a sign of ever-increasing confidence in the sector."

However, Bank of England Governor Mark Carney last month emphasised that 1.4 million people in the UK were having to work in part-time jobs because they were unable to find full-time work.

The pace of growth of new business for UK services companies eased in May to its slowest in 12 months, but it remained brisk by historical standards.

Samuel Tombs, at consultancy Capital Economics, said: "A weighted average of the [CIPS] manufacturing, construction and services surveys' employment balances rose to its highest level since [comparable] records began in 1998."

However, he added: "While this is good news for the near-term outlook for consumer spending, productivity growth will need to pick up if the economic recovery is to maintain its present momentum over the medium term."

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