By Daniel Hunter

The steady improvement in UK service sector performance seen since the start of the year was maintained in April. Growth of business activity was solid and the sharpest for eight months, supported by the strongest rise in new work since last May. A modest increase in staffing levels was also recorded as capacity showed signs of coming under pressure.

On the price front, input costs rose at a marked pace, although the degree of inflation weakened, while output charges were unchanged since March.
After accounting for seasonal factors, the headline Business Activity Index rose to 52.9 in April. Improving on March’s 52.4, the index has now posted above the 50.0 no-change mark in each month since the start of 2013. Moreover, growth has steadily strengthened throughout this period and in April reached an eight-month high.

Higher activity was linked by panellists to increased volumes of incoming new business. Latest data showed that sales rose at the sharpest rate for just under a year as market conditions strengthened. New products, better weather and increased foreign demand were all reported to have supported new contract wins in the latest survey period.

Sales volumes continued to increase at a faster pace than activity during April, placing some pressure on capacity. Latest data showed that backlogs of work rose for the first time since last September and this helped to fuel a further rise in payroll numbers. Although growth in April was modest, employment has now risen continuously since the start of the year, with some companies recruiting additional staff in anticipation of further growth of activity and new business.

Highlighting a positive outlook, over 46% of service providers are forecasting a rise in business activity from present levels in 12 months’ time. There are hopes that the steady improvement in economic conditions seen during recent months will be sustained. Panellists also expect to benefit from recent marketing, planned new product launches and a strengthening of the housing market.

That said, business confidence was slightly lower in April with the economic climate still reported to be challenging and competitive pressures persisting. This was highlighted by the latest data on output charges which were unchanged in April, the first time since last September that an increase hasn’t been recorded.

Stagnation of output charges occurred despite continued rises in input costs, although the rate of inflation eased further from February’s recent high. Food costs remained a key inflationary source, while the prices of a number of imported goods were reported to have risen. Downward pressure on inflation came from a decline in fuel costs.

“A broad-based improvement is becoming evident in the UK economy, greatly reducing the likelihood of the Bank of England seeing any need to increase its asset purchases in the immediate future," Chris Williamson, Chief Economist at survey compilers Markit, said.

“The upturn is being led by the service sector, but it has been accompanied by signs of activity stabilising in manufacturing and construction in April. The weighted PMI from the three surveys rose from 51.0 in March to 52.1, its highest since last August and signalling an increase in business activity for the fourth month running. The data suggest that the return to growth enjoyed by the economy in the first quarter persisted and may have gained momentum at the start of the second quarter.

“With the economy showing signs of gaining momentum and inflation running well ahead of target at 2.8%, the latest PMI data kills off the likelihood of the Bank of England’s Monetary Policy Committee voting for more asset purchases at its May meeting.

"The Bank instead looks set to watch the data flow over coming months and, in particular, to await further evidence of the impact of the newly- extended Funding for Lending Scheme, which is now showing real signs of boosting lending to both households and SMEs, which has been one of the root causes of the disappointing recovery to date."

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