UK services economy surges after end of Plan B curbs despite inflation reaching record high

Brits rushed back to pubs, bars and restaurants after the end of Plan B measures, boosting the UK’s services economy, but firms are raising prices at a record rate, reveals a closely watched survey released today.

Activity among British services firms climbed to an eight month high, hitting 60.5 in February, according to IHS Markit’s latest purchasing managers’ index (PMI).

Curbs such as workers being asked to work from home and vaccine certification certificates were scrapped last month, encouraging consumers to head back to high streets as the degree of influence exerted on economic behaviour from restrictions receded.

Falling Covid-19 cases also boosted Brits’ confidence to socialise again.

Andrew Harker, economics director at IHS Markit, said: “The ebbing of the Omicron wave of the COVID-19 pandemic contributed to a rebound in growth in the UK service sector in February, with rates of expansion in activity and new business up sharply.”

Experts pointed to improving optimism about the business outlook among services businesses providing evidence indicating the UK economic recovery has not run out of steam yet.

“The survey’s forward-looking indicators suggest that the sector will continue to grow at a solid pace over the coming months,” Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, said.

However, IHS Markit’s data revealed inflationary pressures are persisting.

The rate of increase in prices charged by services companies reached a new record high.

Firms are being forced to either hike prices or absorb hits to their profit margins amid a barrage of swelling costs.

Inflation is already running at a near 30 year high of 5.5 per cent, but some economists expect it to surge even higher.

Economists at Goldman Sachs said soaring energy prices caused by the Russia-Ukraine conflict will lead to the energy price cap jumping 55 per cent in October, sending the cost of living to 9.5 per cent, the highest level since 1990.

In response to rampant inflation, the Bank of England will hike interest rates to 1.75 per cent by November, Goldman said.