UK services sector growth accelerated modestly in February but remained adrift of its long-run average, a survey shows, with stretched household finances cited as a factor holding back consumer demand.
The Chartered Institute of Procurement & Supply’s business activity index for UK services rose from a 16-month low of 53 in January to a four-month high of 54.5 in February on a seasonally-adjusted basis, moving further above the level of 50 deemed to separate expansion from contraction. The survey excludes retail.
Chris Williamson, chief business economist at CIPS survey compiler IHS Markit, calculated that the reports on February activity in the manufacturing, construction and services sectors together pointed to a quarterly UK economic growth rate of slightly less than 0.4 per cent. This is a significantly below-trend pace of expansion.
However, highlighting his view that the upturn in CIPS’s surveys last month “surely” left a further rise in UK base rates in May “very much in play”, Mr Williamson said: “The Bank [of England] seems keen to normalise interest rates even if output growth is below levels it would usually like to see when tightening policy.”
CIPS noted service providers had “commented on particularly marked business-to-business sales growth in February, helped by the improving global economic backdrop”.
However, it added: “There were also reports that stretched household budgets remained a factor holding back domestic consumer demand.”
UK services companies, overall, recorded faster growth of new business last month, with this index rising from 53.3 to 55.1.
CIPS said: “Consumer-facing service providers noted that competitive pricing strategies, new product launches and successful marketing initiatives were key factors helping to boost demand, despite a continued headwind from stretched household finances.”
Growth in employment in the UK services sector accelerated slightly in February, the survey shows.
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