By Daniel Hunter

UK service sector activity rose at an accelerated rate during May as new business increased at the sharpest pace for over three years. Amid evidence of marginal capacity pressures and with positive expectations for the coming year, companies added to their payroll numbers for the fifth consecutive month.

Meanwhile, latest price data showed that cost inflation maintained a downward trend, hitting a one-year low. Competitive pressures led to a slight fall in average output charges.

The headline seasonally adjusted Business Activity Index remained firmly above the 50.0 no-change mark during May to signal a fifth consecutive month of service sector growth. Moreover, reaching 54.9, up from April’s 52.9, the index signalled a rate of growth that was the sharpest since March 2012.

Underpinning the increase in activity was a combination of higher sales volumes, promotional activities and new product launches. A number of companies also reported that better weather had supported growth.

This factor also helped drive the sharpest rate of new business growth since February 2010, although improved market conditions were also widely mentioned. Panellists noted an increased willingness amongst clients to commit to new business. Sales have now risen for five successive survey periods.

“The UK economy has moved up a gear with all cylinders now firing. For the first time in a year, manufacturing, services and construction sectors are all now reporting higher levels of activity. The resulting overall pace of growth in May was the fastest since March of last year, having now accelerated for three successive months," Chris Williamson, Chief Economist at survey compilers Markit, said.

“The data suggest that economic growth will have picked up in the second quarter compared to the 0.3% increase in GDP seen in the first quarter, shaping up to reach 0.5% if June sees sustained growth.

“There‟s good reason to believe growth can accelerate further. Across all three sectors, new business showed the largest jump for three years in May. Firms are also taking on staff in increased numbers, responding to the brightening outlook.

“The increasingly buoyant picture and improved outlook painted by the PMIs effectively kills off any chance of the Bank of England‟s Monetary Policy Committee voting for more stimulus such as asset purchases for the foreseeable future. New governor Mark Carney will have the benefit of taking the reins of an economy that is already showing signs of acquiring escape velocity from the doldrums it has been wallowing in for much of the last two years.”

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