UK economy: Flat services sector could ease fears of more interest rate hikes although recession fears still loom
The British services sector continued its recovery from recent woes as it expanded again in March, although more slowly than in February meaning recession still stalks the UK economy.
The S&P Global/CIPS UK services PMI survey showed a reading of 52.9 last month, down from a score of 53.5 in February. Experts had forecast that the score would hit 52.8.
Businesses told the survey they had seen the strongest increase in new export sales since 2014, when it began keeping records.
Any reading above 50 is considered growth, below that means the sector is shrinking.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said flat employment and slowing price rises meant the Bank of England “needn’t stamp on the nascent recovery” by raising interest rates.
“The S&P Global/CIPS services PMI fell to 52.9 in March, from 53.5 in February, but slightly exceeded the consensus and the first estimate, 52.8. “
Tombs added that the composite PMI continued to point to a gradual recovery in business activity during the first three months of 2023.
“We’re still expecting a quarter-on-quarter contraction in GDP, primarily as a result of public sector strikes.
“Businesses expect the recovery to strengthen over the coming months; the future activity index increased to a 12-month high of 71.1 in March, from 70.0 in February, and topped its 2012-to-present average, 68.6.
The new orders balance also increased to 54.4 in March, from 53.2 in February, pointing to an imminent pick-up in activity in the manufacturing and private non-distribution services sectors in Q2.
But the drop in the composite employment index to 50.0, from 51.3, signals that businesses are not confident enough in the outlook to hire more. “
The composite output price index fell sharply to 58.9 in March—its lowest level since April 2021—from 62.2 in February.
“The services output prices index dropped to 59.1, from 62.7, and strengthens the case for thinking that the MPC’s measure of core services CPI inflation will continue to undershoot the Committee’s February forecast.
“Evidence of stable labour demand and slowing price rises means the MPC needn’t stamp on signs of a nascent recovery in economic activity by raising Bank Rate further at its upcoming meetings. “
With agencies